CA - Foundation MCQ Book

INDEX
SR Name Page Note

No. Number
1 Business Economics- 1.1 – 1.13
Basic Concepts
2 Utility Analysis and 2.1- 2.19

Consumer Behaviour
3 Demand Analysis 3.1- 3.31
4 Supply Analysis 4.1- 4.17
5 Production Concepts 5.1- 5.36
6 Cost and Revenue 6.1-6.36

Concepts
7 Market Forms and 7.1- 7.30

Price –output
Determination
8 Business Cycle 8.1- 8.4
Chapter 1- Introduction and Central Economic Problems
Basics of Business Economics

8. In Business economics ‘Means’ refers
1. The word ‘Economics’ originates from to-
the word ……………… (a) Human wants
(a) Oikomnomikos (b) Resources
(b) Oikonomia (c) Both (a) and (b)
(c) Eikonomikos (d) Neither (a) nor (b)
(d) Ekconomics
9. Which of the following is an economic
2. The word ‘Economics’ originates from activity?
the ………… world ‘Oikonomia’ (a) Boy helping his friend to solve
(a) Roman puzzle.
(b) French (b) Teams playing friendly football
(c) Greek match
(d) European (c) A teacher teaching to class
(d) Watching Television
3. Till 19th century Economics was
known as 10. Which of the following is not an
(a) Political Economy economic activity?
(b) Social Economy (a) Housewife doing household duties
(c) Both (a) and (b) (b) Manufacturing of garments at
(d) Neither (a) nor (b) subsidized rate.
(c) Medical facility rendered by
charitable trust
4. The meaning of Greek word ‘oikonomia’ (d) A CA doing his own practice.
is …….
(a) Wealth Management 11. Which of the following is an economic
(b) House Management activity?
(c) Business Economics (a) Housewife doing household duties
(d) Business Management (b) Listening to music on radio
(c) Medical facility rendered by
5. Human wants are…... and means to charitable trust
satisfy these wants are…... (d) Teaching one’s own son at home.
(a) Limited, scarce
(b) Unlimited, unlimited
(c) Unlimited, scarce 12. The law of Scarcity-
(d) Limited, Unlimited (a) Does not apply to developed and
rich countries
6. The meaning of the word ‘Economic’ is (b) Applies only to less developed
closely connected with the word- countries
(a) Scarce (c) Implies that the consumers’ want
(b) Unlimited will be satisfied in a socialist
(c) Restricted economy
(d) Both (a) and (b) (d) Implies that consumers’ want will
never be completely satisfied.
7. In Business economics ‘ends’ refers to-
(a) Human wants 13. What does the scarcity of resource
(b) Resources implies…
(c) Both (a) and (b) (a) We must develop way to decrease
(d) Neither (a) nor (b) our individual wants
1.1
(b) Not all wants can be satisfied (c) Old

(c) Resources can not satisfy any want (d) Both (a) and (b)
(d) Resources are very scarce and shall
not be used at all 19. Consider the following and decide,
which economy (if any) is without
14. Rational decision making requires- scarcity
(a) One’s choice never vary (a) American economy
(b) One’s choice be consistent with (b) Indian economy between 1947-
one’s goal 2000
(c) One makes choices that do not (c) Pre independent Indian economy
involve trade-offs (d) None of the above
(d) One must be graduate to make
decision 20. Scarcity in Economics is an.
(a) Relative concept
15. …….. DefinedBusiness Economics in (b) Absolute concept
terms of the use of economic analysis (c) Irrelevant concept
in the formulation of business (d) Not a concept at all
policies?
(a) J.B Say
(b) Alfred Marshall 21. ………..refers to the process of
(c) Walker selecting an appropriate alternative
(d) Joel Dean that will provide the most efficient
means of attaining a desired end, from
16. Business Economics is also known two or more alternative courses of
as………… action?
(a) Managerial Economics (a) Problem solving
(b) Social Economics (b) Problem analyzing
(c) Environmental Economics (c) Managerial expertise
(d) Money Market Economics (d) Decision making
17. Which of the following statement is not 22. Which of the following involves
correct? Business decision making?
(a) Business Economics refers to the (a) Continue or shut down decision
integration of economic theory with (b) Launching of new product
business practice (c) Proper debt and equity mix
(b) Business Economics is not only (d) All of the above
valuable to business decision
makers, but also useful for 23. Which of the following does not involve
managers of ‘not-for-profit’ Business decision making?
organisations (a) Lease or purchaseof an asset
(c) theories of Economics provide the (b) Deciding which movie to watch on
tools which explain various weekend
concepts such as demand, supply, (c) In-house production or outsource
costs, price, competition etc (d) Which production method should
(d) Business Economics is concerned be used for manufacturing of
only with Micro Economics goods?
18. Economic theories are….… 24. Pragmatic approach means -

(a) Simplistic (a) Realistic
(b) Hypothetical (b) Practical.
1.2
(c) Both (a) and (b)

(d) Neither (a) nor (b) 32. We mainly study the following in
Macro-Economics: ………………
25. Positive Science explains- (a) External value of money
(a) “What is” (b) Product pricing
(b) “What was” (c) National income and output
(c) “What ought to be” (d) (a) and (c)
(d) “What will”
33. Micro and macro are not two
26. Normative Science explains- independent approaches to economic
(a) “What is” analysis but they are complementary
(b) “What ought to be”. to each other.
(c) “What will” (a) False
(d) Both (a) and (b) (b) True
(c) Partly true
27. Positive science is- (d) Partly false
(a) Descriptive
(b) Prescriptive 34. Inventory does not includes
(c) Explanatory (a) Raw Material
(d) Imaginary (b) Work in progress
(c) Finished goods
(d) None of the above
28. Normative science is- 35. The study of behavior of consumers in

(a) Descriptive the market and the effect of changes in
(b) Prescriptive the determinants of demand is called
(c) Explanatory as
(d) Imaginary (a) Demand analysis
(b) Demand forecasting
(c) Cost analysis
29. The study of economic behavior of an (d) Market analysis
individual firm or industry in national
economy is called as …… 36. ………. is the technique of predicting
(a) Micro Economics future demand of goods and services
(b) Macro Economics on the basis of past behavior of factor.
(c) Business Economics (a) Demand analysis
(d) Behavioral Economics (b) Demand Forecasting
(c) Market analysis
30. Macro Economics deals with (d) Price analysis
(a) External value of money
(b) Employment and economic growth 37. …………explains the relationship
(c) General price level between input and output
(d) All of above (a) Cost theory
(b) Supply theory
31. We mainly study the following in (c) Demand theory
Micro-Economics: ……………… (d) Production theory
(a) General price level
(b) National income and output 38. Degree of market power is determined
(c) Location of industry by-
(d) Employment and economic growth (a) Demand analysis
1.3
(b) Cost analysis (b) There are three types of economy-

(c) Market structure analysis Socialist Economy, Capitalist
(d) All of the above Economy and Mixed Economy
(c) Business Economics used the
39. ……..also called as ‘Price Theory’ as it theory of Market and Private
explains the composition of total Enterprises
production. (d) The term Micro-Economics is
(a) Micro economics Derived from Greek work ‘Makros’
(b) Macro Economics
(c) Demand theory 45. ……enables the firm to recognise the
(d) Supply theory behaviour of costs when variables
such as output, time period and size of
40. …….also called as ‘Income Theory’ as plant changes.
it explains level of total production, (a) Cost analysis
total consumption, total savings and (b) Accounting cost
total investment and the rice or fall in (c) Production analysis
these levels. (d) Demand analysis
(a) Micro economics
(b) Macro economics 46. Economics is a …………
(c) Demand Theory (a) Science
(d) Supply theory (b) Art
(d) Neither (a) nor (b)
41. ……..analyses cause and effect
relationship but does not pass any 47. What is the “fundamental premise of
value judgment. the economics?”
(a) Positive or pure science (a) Natural Resources will always be
(b) Normative science scarce
(c) None of the above (b) Individuals are capable of
(d) All of above establishing goals and acting in
manner consistent with
42. ……….evaluates and pass value achievement of those goals
judgment (c) Individuals chose alternative for
(a) Positive science which they believe the net gain to
(b) Pure science be the greatest.
(c) Social Science (d) No matter what the circumstance,
(d) Normative Science individual choice always involves a
trade- off
43. Business economics is not affected by 48. Wants can be satisfied by
external factors consumpotion of………../ are
(a) True economic wants
(b) False (a) Goods
(c) Partially true (b) Services
(d) Cannot be commented (c) Goods and services
44. State which of the following statement
is not true 49. In a free market economy, when
(a) Business economics is inter- consumers increase their purchase of a
disciplinary good and the level of _______ exceeds
______ then prices tend to rise.
1.4
(A) Demand, supply 1. The Central Economic problem is that

(B) Supply, demand of-
(C) Prices, demand (a) Allocating the scarce recourse in
(D) Profit, supply such a manner that society’s
unlimited wants are satisfied as far
50. Which of the following would be as possible
considered a disadvantage of allocating (b) Giving jobs to poor and backward.
resources using a market system? (c) Guaranteeing that the production
(A) Income will tend to be unevenly occurs in most efficient manner
distributed. (d) All of above
(B) Significant unemployment may
occur. 2. Which of the following is the cause of
(C) It cannot prevent the wastage of central economic problem?
scarce economic resources. (a) Scarcity of recourses
(D) Profits will tend to be low. (b) Unlimited wants
(c) Alternative use
51. Which of the following is the best (d) All of the above
general definition of the study of
Economics? 3. State which of the following statement
(A) Inflation and unemployment in a is not true
growing economy. (a) If the recourses were unlimited,
(B) Business decision making under people would be able to satisfy their
foreign competition. wants.
(C) Individual and social choice in the (b) If recourse has only single use,
face of scarcity. then also economic problem would
(d) The best way to invest in the stock not arise.
market. (c) All countries, without exception,
face problem of scarcity.
52. ……….. systematized the concept in (d) Developed countries do not face
the form the book which was entitled Central Economic Problems
as, ‘‘An Enquiry intothe Nature and
Cause of the Wealth of Nations’’ 4. Which of the following is not a central
(a) George Bernard Shaw economic problem?
(b) Adam Smith. (a) What to produce?
(c) Alfred Marshall (b) When to produce?
(d) A. C. Pigou (c) How to produce?
(d) For whom to produce?
53. Adam smith published his masterpiece
“An enquiry into the nature and causes 5. Central Problems arises in case of-
of wealth of nation” in the year …………. (a) Capitalist Economy
(A) 1776 (b) Socialist Economy
(B) 1786 (c) Mixed Economy
(C) 1756 (d) All of the above
(D) 1766
6. If there is adequate recourse in an
economy, then there is no economy
problem at all. This statement is-
(a) False
B. Central Economic Problem (b) True
(c) Partially True
1.5
(d) Cannot be commented at all

13. Which of the following statement is not
7. The Problem of ‘What to Produce’ true-
covers the issue relating to- (a) There are various alternative
(a) What goods are to be produced? techniques of producing a
(b) What quantities of goods are to be commodity.
produced? (b) A society cannot satisfy each and
(c) Both (a) and (b) every want of society.
(d) Neither (a) nor (b) (c) If society uses all the resources for
current consumption and no
8. The economy which uses all its provision is made for future
recourses on production of …… goods production, the society’s
only, con not provide for future growth production capacity would not
prospect. increase..
(a) Consumer goods only (d) None of above
(b) Capital goods only
(c) Both (a) and (b) 14. Capital intensive technique would get
(d) Neither (a) nor (b) chosen in
(a) Capital surplus economy
9. Productive efficiency means - (b) Labour surplus economy
(a) Recourses are employed in their (c) Developed economy
most valued uses (d) Developing economy
(b) Total number of goods produced is
more 15. Labour intensive technique would get
(c) Goods and services are produced at chosen in
least cost without wastage (a) Capital surplus economy
(d) Best recourse are employed (b) Labour surplus economy
(c) Developed economy
10. In deciding ‘ how to produce’ the (d) Developing economy
economy should decide on-
(a) Types to goods to be produced 16. In deciding ‘what to produce’ economy
(b) Consumer goods or capital goods should consider production of
(c) Method of production (a) Capital Goods
(d) Quantity of goods to be produced (b) Consumer goods
11. While solving the question of ’ how to (d) Neither (a) not (b)
produce’ the economy should consider-
(a) Labour intensive technique 17. Distribution and sharing of national
(b) Capital intensive technique product relates to the problem of
(c) Both (a) and (b) (a) How to provide for economic growth
(d) Neither (a) nor (b) (b) What to produce
(c) How to produce
12. While solving the question of ’ how to (d) For whom to produce
produce’ the choice of appropriate
method of production depends upon- 18. The problem of ‘ for whom to produce’
(a) Availability of factor of production deals with
(b) Price of different factor of (a) Share of different people in total
production output of goods and services
(c) Both (a) and (b) (b) How to distribute and share the
(d) Neither (a) nor (b) national product.
1.6
(c) Both (a) and (b) (C) consumer will help the producer in
(d) Neither (a) nor (b) manufacture of goods or rendering
of services
19. An economy can spend on all its (D) consumer have unlimited
recourses on current consumption purchasing power.
without making provision for economic
growth 25. …… determines which goods and
(a) True services will be produced and in what
(b) False quantity
(c) Partially true (A) Buyer
(d) Cannot be commented at all (B) Seller
(C) Government
20. In the context of capitalist economy, (D) All of the above
which of the following statement if
false- 26. Capitalist economy uses……… to solve
(a) Private property is the mainstay of economic problem
capitalism (D) impersonal forces of market
(b) Profit is the driving force in demand and supply.
capitalist economy (E) price mechanism.
(c) Decision of customers and (F) external reports
businesses determines economic (G) economic theories.
activity.
(d) All of above 27. An entrepreneur will produce goods
and services choosing that technique
21. Capitalist economy is also known as- of production which renders his cost
(a) Free market economy of production……
(b) Controlled market economy (A) Minimum.
(c) Both (a) and (b) (B) Maximum.
(d) Neither (a) nor (b) (C) Exactly similar to other
competitors.
22. Laissez-faire economy is another term (D) Higher compared to other
used for competitor
(a) Mixed economy
(b) Capitalist economy 28. Which of the following statement is
(c) Socialist economy true in context with economic problem
(d) None of the above of ‘ for whom to produce’
(A) Higher the income, higher will be
23. Which of the following is not the the buying capacity and higher will
feature of capitalist economy: be his demand for goods in general.
(A) Right to private property. (B) Higher the income, lower will be
(B) Freedom of economic choice. the buying capacity and higher will
(C) Collective ownership be his demand for goods in general
(D) Consumer Sovereignty (C) Goods will be produced for those
who do not have buying capacity
24. Consumer Sovereignty means- (D) income one will be able to make
(A) that buyers ultimately determine depends only on the amount of
which goods and services will be work he does
produced and in what quantities.
(B) consumer will pay only how much
he can.
1.7
29. For analysing ownership and (B) Mixed economy

utilisation of recourses, economies are (C) Controlled market economy
classified into- (D) None of the above
(A) Mixed economy
(B) Capitalist economy
(C) Socialist economy 36. Under capitalist economies, the
(D) All of the above answer to the fundamental questions-
what, how and for whom to produce
30. Capitalist economy is characterised are obtained by–
by- (A) Market forces of demand and
(A) Profit motive supply.
(B) Competition among buyers and (B) Government regulation
sellers (C) Cost benefit analysis
(C) Inequality of income. (D) All of the above.
(D) All of the above
37. Freedom if choice is advantage of-
31. An economic system in which all (A) Mixed economy.
means of production are owned and (B) Controlled economy
controlled by private individuals for (C) Capitalist economy
profit is called as…………… economy (D) None of the above
(A) Capital
(B) Social 38. In a free market economy the
(C) Mixed allocation of resources is determined
(D) None of the above by –
(A) Votes taken by consumers
32. Which of the following is not a feature (B) A central planning authority
of capitalist economy- (C) Consumer preference
(A) Right to private property (D) The level of profits of firms
(B) Profit motive
(C) Freedom of enterprise 39. A capitalist economy uses _____ as the
(D) Equal distribution of income principal means of allocating
resources.
33. Free market economy driving force is- (A) Demand
(A) Welfare of the people (B) Supply
(B) Profit motive (C) Efficiency
(C) Rising income and level of living (D) Prices
(D) None of the above
40. In a free market economy, when
34. Under………..economy, government consumers increase their purchase of
has no control over price fluctuations a good and the level of _______ exceeds
(A) Mixed economy ______ then prices tend to rise.
(B) Free Market (E) Supply, demand
(C) Socialist economy (F) Demand, supply
(D) None of the above (G) Prices, demand
(H) Profits, supply
35. Which type of economy gives rise to
most efficient allocation of recourse 41. The concept of “competition” in a
and capital in the standard Micro- capitalist economy refers to-
Economic framework? (A) Competition among sellers to sell
(A) Free market economy goods.
1.8
(B) Competition among buyers to of a central planning authority and

obtain the goods to satisfy their therefore, market forces have no role
wants in the allocation of resources
(C) Both (a) and (b) (A) Free market economy.
(D) Neither (a) nor (b) (B) Socialist economy.
(C) Mixed economy.
42. Discounts, price cutting, (D) Traditional economy.
Advertisements, etc in capitalist
economy are- 49. Which of the following not the feature
(A) Types of government regulation of socialist economy-
(B) Effects of consumer sovereignty. (A) Collective ownership
(C) Method of handling competition. (B) Profit Motive
(D) None of the above. (C) Absence of economic choice
(D) Relatively equal income
43. Inequalities of income refers to? distribution
(A) All workers do not get equal wages
(B) Gap between rich and poor 50. Socialist economy is characterised by-
(C) All companies do not earn same (A) Selective production of goods
profit (B) Relative equality of income
(D) All of the above (C) Secondary role of price mechanism
44. Price mechanism exists in-
(A) Mixed economy 51. Which of the following applies to
(B) Socialist economy socialist economy-
(C) Laissez-faire economy (A) Balance between social objective
(D) Traditional economy and economic activity
(B) Private ownership of all recourses
45. Socialist economy is also known as- and factor of productions
(A) Free market economy (C) Total absence of government
(B) Mixed economy regulation
(C) Traditional economy (D) Market mechanism to solve central
(D) Command economy economic problem
46. Under Socialist economy………… takes 52. Under command economy, all the
decision for allocation of recourses decision from allocation of recourse to
(A) Central planned authority distribution of end product, is taken
(B) Seller care by
(C) Buyer (A) Producers
(D) Foreign diplomats (B) Cartels
(C) Central planning authority
(D) Consumer forum,
47. The concept of socialist economy was
propounded by……. 53. National income is more often evenly
(A) Karl Marx and Frederic Engels. distributed in-
(B) Marshall (A) Mixed economy
(C) J.B Say (B) Command economy
(D) Joel Dean (C) Both (a) and (b)
(D) Neither (a) nor (b)
48. Under …………the resources are
allocated according to the commands
1.9
54. In Socialist economy, the concept of market economy while excluding

consumer sovereignty is- the demerits of both
(A) Restricted (B) Mixed economy does not exist in
(B) Unrestricted real world
(C) Recognised. (C) In Mixed economy, the state
(D) None of the above imposes necessary measures to
control and to regulate the private
55. Pure form of socialist economy does sector to ensure that they function
not exist in present days in accordance with the welfare
(A) False objectives of the nation
(B) True (D) In Mixed economy,it is very difficult
(C) Partially true to maintain a proper balance
(D) Cannot be commented at all between the public and private
sectors.
56. Identify the correct statement-
(A) In capitalist economy, people are 60. The term mixed economy denotes
not free to spend their income as (A) Co-existence of private and public
they like sector in an economy
(B) In socialist economy right to work (B) Co-existence of consumer and
is guaranteed but the choice of producer’s goods industries in an
occupation gets restricted. economy
(C) In Socialist economy, a relative (C) Co-existence of urban and reral
inequality in income is an sectors in an economy
important feature (D) Co-existence of Large and small
(D) In Socialist economy, people are industries in an economy
not allowed to choose between
available range of choice 61. Mixed economy contains the positive
feature of-
57. In Mixed economies, the answer to (A) Capitalist economy
fundamental question- what, hoe and (B) Socialist economy
for whom to produce are obtained by- (C) Both (a) and (b)
(a) Market force of demand and supply (D) Neither (a) nor (b)
(b) Government regulations.
(c) Cost benefit analysis. 62. Which of the following is not a micro
(d) All of the above economic subject matter?
(A) The price of mangoes
58. …….. economic system depends on (B) The cost of producing a fire truck
both markets and governments for for the fire department of Delhi,
allocation of recourses India.
(A) Mixed (C) The quantity of mangoes produced
(B) Socialist for the mangoes market.
(C) Traditional (D) The national economy’s annual
(D) Free market rate of growth.
59. State which of the following statement 63. Which of the following is not one of the
is false four central questions that the study
(A) In a mixed economy, the aim is to of economics is supposed to answer?
develop a system which tries to (A) Who produces what?
include the best features of both (B) When are goods produced?
the controlled economy and the (a) Who consumes what?
1.10
(C) How are goods produced? (D) All of the above
64. In Mixed economy there are ….. 71. In India areas like atomic energy,
sectors of industries defence, etc are in the hands of….
(a) One (E) Public sector
(b) Two (F) Private sector
(c) Three (G) Joint sector
(d) Four (H) All of the above
65. Larger production of_____goods would 72. ……….. is the demerit of capitalist
lead to higher production in future. economy
(A) Consumer goods (A) Low cost of production
(B) Capital goods (B) High regulation of government
(C) Agricultural goods (C) No incentive for hard work
(D) Public goods (D) Inequality of income
66. In mixed economy, industries are 73. Indian economy is an example of………
found in…… (A) Mixed economy
(A) Joint Sector (B) Socialist economy
(B) Private sector (C) Capitalist economy
(C) Public sector (D) None of the above
74. A Mixed economy focuses on ensuring
67. In Mixed economy, industries in (A) Productive efficiency of capitalism
private sectors have…. as their (B) Distributive justice of Socialism
bjective and driving force, while public (C) Both (a) and (b)
sector have……..as their objective and (D) Neither (a) nor (b)
driving force ?
(A) profit motive, community welfare 75. In Mixed economy, private sector-
(B) community welfare, profit motive (A) Are absolutely free to make any
(C) community welfare, own profit type of decisions
(D) None of the above (B) Works only for social objectives
(C) Are regulated directly and / or
68. Mixed economy is characterised by- indirectly by government
(A) Existence of private, public and (D) Does not exists at all
joint sector
(B) Planned development 76. Scarcity is a situation in which
(C) Balanced regional development …………
(D) All of the above (a) Wants exceed the resources
available to satisfy them
69. There is no freedom of choice in- (b) Something is being wasted
(A) Capitalist economy (c) People are poor
(B) Socialist economy (d) None of the above
(C) Mixed economy
(D) All of the above 77. Freedom of choice is the advantage of
…………….
70. Autonomy and freedom is more in- (A) Socialism
(A) Socialist economy (B) Capitalism
(B) Capitalist economy (C) Mixed economy
(C) Mixed economy (D) Communism
1.11
1.12
1.13
Utility Analysis and Consumer Behaviour
Utility 8. Which of the following is not a
1. ………… is the power of a commodity consumption
to satisfy a human want (a) Burning of crackers in diwali
(a) Utility (b) Eating ice cream
(b) Money (c) Burning gas when cooking food
(c) Price (d) Burning of bike in an accident of
(d) None of the above. fire
2. Utility - 9. As per the cardinal approach-utility

(a) Differs from person to person is………aspect.
(b) Differs from time to time (a) psychological
(c) Differs from product to product (b) non quantifiable
(d) All of the above (c) quantifiable
(d) irrelevant
3. Utility is applicable -
(a) Only for socially desirable goods 10. All wants of an individuals are not of:
(b) Only for harmful goods like liquor, (a) Immediate importance
cigarettes etc (b) Fixed importance
(c) Both (a) and (b) (c) Equal importance
(d) Neither (a) nor (b) (d) All of the above
4. Utility is a……….. aspect and differs Cardinal Approach- Basics

from person to person
(a) Absolute 11. State whether the given statement is
(b) Subjective true or false in context of cardinal
(c) Objective approach to utility ‘Human satisfaction
(d) Irrelevant can be expressed in monetary terms,
and price of a commodity in the
5. State whether the given statement is market indicates the level of consumer
true or false-‘ Utility means usefulness satisfaction’
(a) True (a) True
(b) False (b) False
(c) Partially true (c) Partially true
(d) Cannot be commented at all (d) Cannot be commented at all
6. The concept of utility is ethically 12. Marginal utility approach to demand

neutral- this statement is was given by
(a) True (a) Hicks and Allen
(b) False (b) J.B say
(c) Partially true (c) Alfred Marshall
(d) Cannot be commented at all (d) Dean Joel
7. Utility theories seek to explain how a 13. Which of the following statement is not
consumer spends his income on correct
different goods and services so as to (a) Cardinal approach provides basis
………. for law of demand
(a) Become wealthy (b) Cardinal approach assumes money
(b) survive measurement concept
(c) Match standard of living (c) Cardinal approach to utility
(d) Attain maximum satisfaction explains the relationship between
demand, supply and price.
CA. Aditya Sharma Page 2.1

(d) Cardinal approach to utility do not 21. Which of the following is not a
assume consistency of money necessary assumption to cardinal
utility theory?
14. Utility can be measure and quantified (a) Rationality of the consumer
under- (b) Constant marginal utility of money
(a) Cardinal Approach (c) Additively of utility
(b) Ordinal approach (d) Perfect competitive market
(d) Neither (a) nor (b) 22. Cardinal approach to utility analyses-.
15. Under marginal utility analysis, utility (a) One commodity at a time
is assumed to be a- (b) Two commodities at a time
(a) Cardinal concept (c) Many commodities at a time
(b) Ordinal concept (d) Does not analyse any commodity at
(c) Infinite concept a time
(d) Modern concept
23. Under Cardinal approach to utility,
16. Marshallian utility analysis is known …….. is the measuring rod of utility
as ……………. analysis (a) Money
(a) Ordinal (b) Time
(b) cardinal (c) Customer satisfaction
(c) Classic (d) All of the above
(d) Modern
24. Which of the following is not an
17. According to Marginal utility analysis, assumption under cardinal approach
utility can be measured in of utility analysis
(a) Ranks (a) Utility is goods are independent of
(b) Nominal value one another
(c) Cardinal numbers (b) Marginal utility of money is
(d) All of the above constant.
(c) Utility is comparable across the
18. Marginal utility approach is also called goods
as - (d) Utility cannot be measured, but
(a) Hicks and Allen approach only ranked
(b) Modern approach
(c) Ordinal approach 25. The cardinal approach of utility
(d) Cardinal approach analysis assumes that utility is
measurable and quantifiable. This
19. Which of the approaches uses money means-
measurement concept of utility? (a) Utility can be expressed in
(a) Cardinal numbers
(b) Ordinal (b) Utility can be ranked across the
(c) Neither (a) nor (b) products
(d) Both (a) and (b) (c) Utility schedule is derived by the
consumer
20. Which of the theories are applicable (d) All of the above
under cardinal approach to utility?
(a) Law of diminishing marginal utility 26. Cardinal approach to utility assumes
(b) Law of Equi-Marginal utility Marginal utility of money is-.
(c) Consumer surplus theory (a) Zero
(d) All of the above (b) Constant
(c) Increasing
(d) Decreasing

Total utility and Marginal utility (c) MU is equal to average utility
(d) Average utility is maximum
27. ……… is derived from different units of
commodity consumed by a consumer. 34. When total utility increases at
(a) Total utility diminishing rate, the marginal utility
(b) Marginal utility is………
(c) Average utility (e) Diminishing
(d) Ordinal utility (f) Zero
(g) Maximum
28. ……… is the additional utility derived (h) One
from additional unit of a commodity
(a) Marginal utility 35. Marginal utility will always show-
(b) Total utility (a) Increasing trend
(c) Ordinal utility (b) Decreasing trend.
(d) Average utility (c) Both (a) and (b)
29. Marginal utility can be stated as-
(a) TUn-TUn-1 36. State which of the following statement
(b) Additional utility derived from is false in context of cardinal approach
additional unit of a commodity. to utility-
(c) Change in total utility / change in (a) A person can express the
quantity satisfaction derived from
(d) All of the above consumption of a commodity in
quantitative terms.
30. Marginal utility is- (b) It is possible to express which
(a) additional utility derived from commodity gives better utility and
additional unit of a commodity by how much.
(b) change in the total utility resulting (c) Utilities derived from different
from one- unit change in commodities are not independent of
consumption of commodity, per one another and affects one
unit of time another
(c) Both (a) and (b) (d) It is assumed that marginal utility
(d) None of above of money is constant.
31. Marginal utility- 37. The Law of Diminishing Marginal

(a) Will always be positive Utility states that all else equal as
(b) Will always be negative consumption increases the marginal
(c) Can be positive or negative but not utility derived from each additional
zero unit……..
(d) Can be positive or negative or zero (a) declines
(b) increases
32. Total utility- (c) goes up to zero
(a) Will always be positive (d) remains constant
(b) Will always be negative
(c) Can be positive or negative but not 38. Each want is ……….
zero (a) Non satiable
(d) Can be positive or negative or zero (b) Limited
(c) unlimited
(d) Satiable
33. Total utility is maximum when-
(a) Marginal utility is zero 39. Total utility increases at a………
(b) MU is at its highest point (a) Increasing rate

(b) Decreasing rate (d) -194
(c) Constant rate
(d) None of the above 46. Total utility that Mr. Ram derives from
consumption of 4 cup of tea is 10.
40. Marginal utility curve is………. Total utility on consuming 5 cups is 9.
(a) Downward sloping What is MU of 5th cup?
(b) Slopes from left to right (a) 1
(c) Negatively sloped (b) -1
(d) All of the above (c) 0
(d) 19
41. Marginal utility varies………. With the
supply. 47. Total utility that Mr. Khan derives
(a) directly from consumption of 10 Frooti is 250.
(b) inversely MU of 11th frooti is -60. What will be
(c) simultaneously the total utility of 11 frooti?
(d) None of the above (a) -60
(b) 250
42. Marginal utility of goods increases as (c) 190
the quantity …………. Goods with the (d) 310
consumer increases.
(a) Complementary 48. Total utility that Mr. Rowdy derives
(b) Substitute from consumption of 6 Apple is 300.
(c) Giffen MU of 7th Apple is 30. What will be the
(d) All of the above total utility of 7 Apple?
(a) 330
43. MU of the goods decreases as the (b) 270
quantity of ………. goods with the (c) 300
consumer increases. (d) 30
(a) complementary
(b) Substitute No. of Total Marginal
(c) Both (a) and (b) units Utility utility
(d) None of the above 0 0 ?
1 900 A
44. When the economists speak of utility 2 B 800
of a certain product, they are referring 3 2400 C
to- 4 D 600
(a) Demand of the product 5 3500 E
(b) Usefulness of the product 6 F 400
(c) Satisfaction derived from the 7 4200 G
product 8 4400 H
(d) Price of the commodity 9 I 100
10 J
[Practical problems with hints]
11 4400 K
12 K -300
45. Total utility derived by Miss Katrina by
Use the given table and solve next
consuming 10 Mangoes is 99, where
13 questions
the total utility on consumption of 11
Mangoes is 95. What is the marginal
49. What is the value of “?” in the above
utility of 11th Mango?
table?
(a) -4
(a) 0
(b) 4
(b) 1
(c) 194

(c) -1 57. What is the value of “H” in the above
(d) 900 table?
(a) 4400
50. What is the value of “A” in the above (b) 200
table? (c) 8
(a) 0 (d) Cannot be determined
(b) 1
(c) 900 58. What is the value of “I” in the above
(d) Cannot be determined table?
(a) 4500
51. What is the value of “B” in the above (b) 100
table? (c) 9
(b) 1700
(c) 800 59. What is the value of “J” in the above
(a) 4500
52. What is the value of “C” in the above (b) 10
table? (c) 0
(b) 2400
(c) 700 60. What is the value of “K” in the above
(a) 100
53. What is the value of “D” in the above (b) -100
table? (c) 11
(b) 4 61. What is the value of “L” in the above
(c) 600 table?
(d) Cannot be determined (a) 300
(b) -300
54. What is the value of “E” in the above (c) 4100
table? (d) -4100
(a) 3500
(b) 5 [Refer hints to solve the given practical
(c) 500 problem]
(d) Cannot be determined
Law of diminishing Marginal utility
55. What is the value of “F” in the above
table? 62. As per law of diminishing marginal
(a) 6 utility, the more a consumer consumes
(b) 3900 a product, he derives………. Utility
(c) 400 from additional consumption
(d) Cannot be determined (a) Lesser
(b) Equal
56. What is the value of “G” in the above (c) Higher
table? (d) Infinite
(a) 7
(b) 4200 63. Which law states that the more a
(c) 300 consumer consumes a product, he
(d) Cannot be determined derive lesser Utility from additional
consumption

(a) Law of Equi-marginal utility (d) None of the above
(b) Law of diminishing marginal utility
(c) Law of cardinal utility 69. Law of diminishing marginal utility,
(d) Law of Demand continuous consumption means there
should be…………… between
64. Law of diminishing marginal utility, consumption of one unit and another
the more a consumer consumes a unit.
product, he derives lesser Utility from (a) Equal time gap
………. consumption. (b) No time gap
(a) Lower (c) Long time gap
(b) Infinite (d) Any of the above
(c) Additional
(d) No extra 70. Law of diminishing marginal utility will
not hold good income of the consumer-
65. ‘Second glass of water gives lesser (a) Increases
satisfaction to a thirsty person’. This is (b) Decreases
a case of (c) Remains constant
(a) Law of Equi- Marginal utility (d) Both (a) and (b)
(b) Law of diminishing return
(c) Law of Demand 71. As per Law of diminishing marginal
(d) Law of diminishing marginal utility utility, if the liking of the person
increases on additional consumption
66. After reaching a saturation point, the law will hold good. This statement
consumption of additional units of is
commodity causes- (a) False
(a) Total utility & Marginal utility both (b) True
to increases (c) Partially true
(b) Total Utility to fall and Marginal (d) Noting can be said
utility to increase
(c) Total utility to fall & Marginal 72. As per assumption to Law of
utility to become negative diminishing marginal utility, in case of
(d) Total utility to become negative & Money, gold, etc. greater quantity may-
Marginal utility to fall (a) Increases the lust and utility
thereof
67. Marginal utility of a commodity (b) decreases the lust and utility
depends on its quantity and is- thereof
(a) Inversely proportional to its (c) No effect on utility at all
quantity (d) Nothing can be said
(b) Not proportional to it quantity
(c) Independent of its quantity 73. Which of the following is an
(d) None of the above assumption of Law of Diminishing
Marginal utility?
68. Which of the following is not an (a) Continuous consumption
assumption of law of Diminishing (b) Constant demand
Marginal Utility? (c) Perfect competition
(a) Different units consumed should (d) Ordinal approach to utility
be identical in all respect
(b) There should be no time gap 74. Which of the following is an
between consumption of one unit assumption of Law of Diminishing
and another unit. Marginal utility?
(c) Different unit consumed must be (a) Cardinal approach to utility
standard unit.

(b) Different units consumed should 81. As per which law, ‘If marginal utility of
be identical in all respect money spent on commodity X is
(c) The Fashion, habit or taste of the greater than marginal utility of money
consumer must remain constant. spent on commodity Y, then the
(d) All of the above consumer will withdraw some money
from purchase of Product Y and will
75. Law of diminishing marginal utility spent on purchase of X, till MU of
does not apply to………..., where money in two cases becomes equal’?
personal preferences are dominant (a) Law of demand
(a) Music (b) Law of supply
(b) hobbies (c) Law of Equi-marginal utility
(c) Both (a) and (b) (d) Law of diminishing marginal utility
82. The consumer will attain maximum
76. Law of diminishing marginal utility is satisfaction, and will be in equilibrium
based on the assumption that the when MU of money spent on various
habits and tastes of the consumer- goods that he buys are-
(a) Must remain constant (a) Equal
(b) Must change (b) Decreasing
(c) Both (a) and (b) (c) Zero
(d) Neither (a) nor (b) (d) Increasing
77. Law of diminishing marginal utility is 83. Consumer will attain ………
not applicable in case of. satisfaction, and will be in equilibrium
(a) Gold when MU of money spent on various
(b) Money goods that he buys are equal
(c) Both (a) and (b) (a) Constant
(d) Neither (a) nor (b) (b) Minimum
(c) Maximum
78. Utility may be affected by presence of? (d) Infinite
(a) Complementary goods
(b) Substitute goods 84. The consumer will attain maximum
(c) Both (a) and (b) satisfaction, and will be ……… when
(d) Neither (a) nor (b) MU of money spent on various goods
that he buys are equal
79. Utility obtained from tea is affected by (a) In equilibrium
availability of sugar. This statement is- (b) Irrational
(a) True (c) In happiness
(b) False (d) In sadness
(c) Partially True
(d) Cannot be commented at all 85. The consumer will attain maximum
satisfaction, and will be in equilibrium
80. Law of diminishing marginal utility when ………… goods that he buys are
applies only if………..measurement to equal
utility is assumed. (a) MU of different goods
(a) Cardinal (b) Marginal utility of Money spent on
(b) Ordinal various goods
(c) Both (a) and (b) (c) MU of different goods
(d) Neither (a) nor (b) (d) All of the above
Law of Equi-Marginal utility 86. Law of Equi-marginal utility applies

because-

(a) Consumer will try to maximize his (c) Profit of that commodity
satisfaction (d) Equals to marginal utility from a
(b) There may be substitute available commodity
for each product in the market.
(c) The consumer will substitute one 92. If the price paid by the consumer is
item for the other such that his more than the additional satisfaction
MU>Price derived from that item, the consumer
(d) All of the above will-
(a) Stop buying the item
Consumer Equilibrium and Consumer (b) Start selling the item
Surplus (c) Start buying the item
(d) Nothing can be said
87. Rational person does not act unless-
(a) The action makes money for the 93. Consumer surplus means-
person (a) The area between average revenue
(b) The action is ethical and marginal revenue curves
(c) Marginal benefits exceeds marginal (b) The area inside budget line
cost (c) Difference between the maximum
(d) Marginal cost exceeds marginal amount a person is willing to pay
benefits for a good and its market price.
(d) Both (b) and (c)
88. Rational decision means-
(a) Error-free decision 94. The difference between the price a
(b) One’s choice that do not involve consumer is ready to pay less what he
trade-off actually pays is called as
(c) One’s choices never vary (a) Consumer Equilibrium
(d) One’s choice be consistent with (b) Excess price
one’s goals (c) Consumer surplus
(d) Exploitation
89. Buyer’s willingness to pay is that
buyer’s- 95. Law of consumer surplus is based on-
(a) Minimum amount he is willing to (a) Law of diminishing marginal utility
pay for a product (b) Reveled preference theory
(b) Producer’s surplus (c) Law of substitution
(c) Maximum amount he is willing to (d) All of the above
pay for a product
(d) Consumer’s surplus 96. Consumer surplus arises because-
(a) MU is initially higher than the price
90. As per which principle-‘The consumer (b) MU is always equal to price
will be willing to buy a commodity, as (c) MU is always equal to zero
long as the MU (additional satisfaction) (d) MU is initially lower than the price
derived is equal to price of the
commodity’? 97. MUx is the marginal utility of product
(a) Consumers Equilibrium X and Px is the price of the product, a
(b) Consumer’s surplus rational consumer will consume
(c) Consumer advantage Product X until-
(d) Consumer exploitation (a) MUx> Px
(b) Mux< Px
91. The consumer is in equilibrium when (c) MUx=0
price of the commodity………………. (d) MUx= Px
(a) Demand of that commodity
(b) Supply of that commodity

98. “The excess of the price which he 104. In the concept of consumer
would be willing to pay rather than go Equilibrium and consumer surplus,
without the thing over that which he for the quantity purchased at
actually does pay in economic measure equilibrium level-
of his surplus satisfaction” is given by (a) Consumer’s surplus is positive
(a) Alfred Marshall (b) Consumer’s surplus is zero
(b) Lionel Ribbins (c) Consumer’s surplus is negative
(c) J.R. Hicks (d) Any of the above
(d) Edge Worth.
105. In the concept of consumer
99. Consumer surplus is the area- Equilibrium and consumer surplus,
(a) Below demand curve and above for the quantity purchased at
price line equilibrium level marginal utility is-
(b) Above supply cure and below price (a) Positive
line (b) Negative
(c) Above Demand curve and below (c) Equal to price
price line (d) Zero
(d) Any of the above
106. Consumer surplus arise in respect of-
100. Consumer surplus can be best (a) All quantities purchased up to
represented as- consumer’s equilibrium level
(a) What a consumer is ready to pay (b) All quantities purchased beyond
less what he actually pays `consumer’s equilibrium level
(b) What producer actually produce (c) Quantities purchased at
less what he actually pays equilibrium level only
(c) What a consumer is ready to pay (d) None of the above
less what he actually not pays
(d) None of the above 107. Consumer surplus is higher in case of-
(a) Luxuries
101. Consumer surplus is derived from (b) Comfort
which of the following concept (c) necessities
(a) Law of supply (d) All of the above
(b) Law of demand
(c) Law of diminishing marginal utility 108. Which of the following gives maximum
(d) All of the above consumer surplus?
(a) Car
102. The concept of Consumer surplus (b) TV
arises because - (c) Mobile
(a) MU increases but price remains (d) Wheat
constant
(b) MU declines but price remains 109. Consumer stops purchasing of
constant addition commodity when-
(c) MU increases but price decreases (a) MU starts decreasing
(d) MU decreases but price increases (b) MU becomes zero
(c) MU is equal to MU of the money
103. At the point of consumer’s equilibrium (d) Total utility is increasing
(a) Consumer’s surplus is maximum
(b) Consumer’s surplus is negative 110. A monopolist will try to take maximum
(c) Consumer’s surplus is zero advantage of consumer surplus by
(d) All of the above adopting-
(a) Price Equilibrium
(b) Price Exploitation

(c) Price rigidity (b) Monopolistic competition
(d) Price discrimination (c) Monopoly
(d) All of the above
111. In case of two or more products, a
consumer will reach equilibrium when- 117. Under which of the following market
. type consumer surplus will be generally
(a) MUx/Px=MUy/Py maximum?
(b) MUx.Px=MUy.Py (a) Perfect competition
(c) MUx+Px=MUy+Py (b) Monopolistic competition
(d) MUx/Py=MUy+Px (c) Monopoly
112. Which of the following statements
regarding consumer surplus is not
true? 118. If MUx/Px> MUy/Py then the
(a) It is useful for designing consumer will-
government policies and (a) Increase consumption of X and
implementing welfare programs reduce consumption of Y
(b) It helps in monopolist to fix the (b) Increase consumption of Y and
price of a commodity reduce consumption of X
(c) On the basis of consumer surplus (c) Will increase consumption of both
only domestic trade can be the products X and Y
advocated and international trade (d) Will decrease consumption of both
should be avoided the products X and Y
(d) It can also be used to measure
health of the economy 119. In case of necessaries, the Marginal
utility for first few items will be-
113. ………. Consumer surplus indicates (a) Zero
higher level of efficiency in economy. (b) High
(a) Higher (c) Infinite
(b) Lower (d) None of the above
(c) Balanced
(d) Negative 120. Which of the following statement/s is
true -
114. ……………... is useful for designing i. The consumer surplus derived from
government policies and implementing a product is affect by availability of
welfare programs. substitute
(a) Law of diminishing return ii. The consumer surplus derived from a
(b) Consumer surplus product is affect by availability of
(c) Law of Equi-marginal utility complementary items
(d) Income and substitution effect iii. The concept of consumer surplus
fails in case of articles which are
115. Consumers surplus left with consumer used for their prestigious value.
under price discrimination is- Example diamond.
(a) Zero iv. If we make assumption that utility
(b) Maximum cannot be expressed in monetary
(c) Minimum terms, the concept of consumer
(d) Not predictable surplus will still apply
(a) i,ii,iv
116. Under which of the following market (b) i,ii,iii,iv
type consumer surplus will be (c) i,ii,iii
generally minimum? (d) Only iv
(a) Perfect competition

121. The concept of consumer surplus is 126. Suppose the price of new phone is
based on the assumption that 5000 and Mr. Ranveer values new
Marginal utility of the money is- phone at 7000. What will be the
(a) Zero consumer surplus if Mr. Ranveer buys
(b) Infinite the phone?
(c) Negative (a) 2000
(d) Constant (b) 3000
(c) 12000
122. Which of the following is the drawback (d) 5000
of consumer surplus-
(a) It cannot be measured in terms of 127. Suppose the price of new bike is 15000
money as the marginal utility of and Mr. M.S values new bike at 14000.
money of money changes What will be the consumer surplus if
(b) It is highly hypothetical concept Mr. Dhoni buys the bike?
(c) It ignores interdependency of the (a) 29000
goods (b) 1000
(d) All of the above (c) 0
Practical problems on Consumer 128. Suppose there are three computes
equilibrium and consumer surplus available to be purchased. Mr Shyam
is willing to pay 25000, Mr Raju is
123. Consumer consumed three products. willing to pay 20000 and Mr. Babubhai
MU derived from consumption of three is ready to pay 15000. If the price of
products is INR 400, INR 350, and INR the computer is 20000, what is the
300. If price of the product is 300, consumer surplus in this market and
what is the consumer surplus? how many units will be sold?
(a) 0 (a) Consumer surplus is 5000 and 2
(b) 100 units will be sold.
(c) 150 (b) Consumer surplus is 60,000 and 2
(d) 50 units will be sold.
(c) No consumer surplus and 2 units
124. Consumer consumed three products. will be sold
MU derived from consumption of first (d) Consumer surplus is 5000 and 3
two units is INR 400, INR 350. If the units will be sold.
price of the product is INR 300 and the
consumer is in equilibrium at 3 units,
the MU of 3rd unit is- Use the following diagram to solve
(a) 100 the next 5 questions-
(b) 200
(c) 300 M
(d) 400 Y
125. If the prices of ice-cream and chocolate

are 40 and 30 respectively and MU of
chocolate is 150, what is MU of ice B
cream assuming consumer is in A
equilibrium?
(a) 112.5 M’
(b) 125 MU
(c) 200 O Q
(d) 225 C X
Quantity of commodity along X axis

Price and Marginal utility along Y axis 13. D 59. A 105. C
14. A 60. B 106. A
129. In the above diagram, market price at 15. A 61. C 107. C
consumer equilibrium is given by- 16. B 62. A 108. D
(a) OA 17. C 63. B 109. C
(b) OC 18. D 64. C 110. D
(c) MM’ 19. A 65. D 111. A

20. D 66. C 112. C
21. D 67. A 113. C
22. A 68. D 114. B
130. In the above diagram, consumers total 23. A 69. B 115. B
utility is given by- 24. D 70. D 116. C
(a) Area under OMBC 25. A 71. A 117. A
(b) Area under OABC 26. B 72. A 118. A
(c) Area under AMB 27. A 73. A 119. C
(d) None of the above 28. A 74. D 120. C
29. D 75. C 121. D
30. C 76. A 122. D
131. In the above diagram, price paid by the 31. D 77. C 123. C
consumer is given by- 32. X 78. C 124. C
(a) Area under OMBC 33. A 79. A 125. C
(b) Area under OABC 34. X 80. A 126. A
(c) Area under AMB 35. B 81. C 127. C
(d) None of the above 36. C 82. A 128. A
37. A 83. C 129. A
38. D 84. A 130. A
132. In the above diagram, consumer
39. B 85. B 131. B
surplus is given by- 40. D 86. D 132. C
(a) Area under OMBC 41. B 87. C 133. B
(b) Area under OABC 42. A 88. D
(c) Area under AMB 43. B 89. C
(d) None of the above 44. C 90. A
45. A 91. D
133. In the above diagram, consumer 46. B 92. A
attains equilibrium by consuming…….
units Q 45:
(a) OA Marginal utility is TU n- TU n-1
(b) OC ∴ MU11= TU 11 – TU 10
(c) MM’ MU11= 95-99
(d) None of the above MU11= -4
Answers Q46
Marginal utility is TU n- TU n-1
1. A 47. C 93. C ∴ MU5= TU 5 – TU 4

2. D 48. A 94. C MU5= 9-10
3. C 49. A 95. A MU5= -1
4. B 50. C 96. A Q47
5. B 51. B 97. D Marginal utility is TU n- TU n-1
6. B 52. C 98. A
∴ MU11= TU 11 – TU 10
7. D 53. A 99. A
∴ -60 = TU 11 – 250
8. D 54. C 100. A
9. C 55. B 101. C
∴ TU 11 = 190
10. D 56. X 102. B
11. A 57. B 103. C Q48
12. C 58. A 104. B Marginal utility is TU n- TU n-1
∴ MU7= TU 7 – TU 6

∴ 30 = TU 7 – 300 Since the consumer is in equilibrium at 3
∴ TU 7 = 330 units, price of the commodity will be equal
to MU derived from 3rd unit.
Q50 ∴ MU3=Price
Value of A = MUn= TU n- TU n-1 ∴ MU3=300
∴ MU1= TU 1 – TU 0
∴ MU1= 900 – 0 Q125
∴ MU1= 900 At consumer equilibrium-
∴ Value of A =900 Mux/Px=MUy/Py
∴MU chocolate/ Price of chocolate=MU of
Q51 ice cream/ Price of ice cream
Value of B = Total utility by consuming 2 ∴150/30= MU of ice cream /40
units of a particular commodity ∴MU of ice- cream =200
∴ MU2 + TU 1= TU 2
∴ TU2= 900+800 4. Ordinal Approach.
∴ TU2= 1700
∴ Value of B =1700 1. As per the ordinal approach-
(A) Measurement of utility us not
Q52 possible through n=money
Value of C = MU n= TU n- TU n-1 (B) Measurement of utility is possible
∴ MU3= TU 3 – TU 2 but cannot be ranked
∴ MU3= 2400-1700 (C) Measurement of utility is not
∴ MU3= 700 possible in cardinal number but
∴ Value of C =700 can be ranked
Q53
Value of D = Total utility by consuming 4 2. Which of the following Economists are
units of a particular commodity not concerned with ordinal approach
∴ MU4 + TU 3= TU 4 to utility
∴ TU4= 600+2400 (A) Hicks
∴ TU4= 3000 (B) Allen
∴ Value of D =3000 (C) Marshall
Question 54 to 61 can be solved similarly
by applying same formula. 3. As per………… approach to utility
‘Human Satisfaction is psychological
Q123 phenomenon and cannot be measured
Consumer surplus is equal to Marginal quantitatively?
utility derived from the consumption of a (A) Cardinal
commodity- price of the commodity. (B) Ordinal
Let S1, S2, S3 be the surplus derived from (C) Both (a) and (b)
the consumption of products (D) Neither (a) nor (b)
∴S1=MU1-Price
=450-300 4. Ordinal approach to utility analyses-
=150 (A) One commodity at a time.
SimilaryS2=50andS3=0 (B) Two commodities at a time
Total consumer surplus (C) Many commodities at a time
=S1+S2+S3 (D) Does not analyses any commodity
=100+50+0 at all
=150 5. In which approach is utility ranked in
order of preferences but measured in
Q124 cardinal numbers?

(A) Ordinal approach (D) All of the above
(B) Cardinal approach 13. ………… shows various combinations
(C) Both cardinal and ordinal of two goods that give same amount of
approach satisfaction.
(D) Independent variable approach (A) Isoquants
(B) Isocost curve
6. Ordinal utility approach is also called (C) Marginal utility curve
as- (D) Indifference curve
(A) Indifference curve approach
(B) Hicks and Allen approach 14. Indifference curve shows various
(C) Both (a) and (b) combinations of two goods that
(D) None of the above give…… amount of satisfaction –
(A) Lower
7. Ordinal approach is also called as (B) Higher
(A) Cardinal utility approach (C) Same/ equal
(B) Marshallian approach (D) Constant
(C) Hicks and Allen approach
(D) All of the above 15. All point in indifference curve
8. Which of the approaches dispense represents-
with money measurement concept of (A) Same satisfaction
utility? (B) Equal satisfaction
(A) Cardinal approach (C) Similar satisfaction
(B) Ordinal approach (D) All of the above
(C) Both (a) and (b)
(D) Neither (a) nor (b) 16. Consumer is said to be …….. among
different points on IC–
9. Which of the approaches helps to (A) Intelligent
explain the Law of Demand? (B) Irrational
(A) Cardinal (C) Indifferent
(B) Ordinal (D) Intersecting
(C) Both (a) and (b)
(D) Neither (a) nor (b) 17. Indifference curve slopes-
(A) Downward to the right
10. Indifference curve approach to utility (B) Upward to the right
analysis was given by- (C) Downward to the left
(A) Hicks and Allen (D) Upward to the left
(B) Alfred Marshall
(C) Lionel Ribbins 18. Indifference curve is convex to the
(D) Adam smith origin, the reason is-
(A) Increasing marginal rate of
11. As per Indifference curve approach to substitution
utility analysis., utility can be - (B) Constant marginal rate of
(A) Measured in cardinal numbers substitution
(B) Ranked (C) Diminishing Marginal rate of
(C) Measured in nominal value substitution
(D) All of the above (D) None of the above
12. Ordinal approach to utility analysis is 19. The reason for downward sloping
also known as- Indifference curve is-
(A) Indifference curve analysis (A) Diminishing MRS
(B) Marginal utility analysis (B) Increasing MRS
(C) Marshallian approach (C) Constant MRS

(D) None (D) All of the above
20. Indifference curve – 27. Which of the following is not a feature

(A) Is downward sloping of Indifference curve-
(B) Had negative slope (A) IC is convex to the origin
(C) Slopes downwards towards right (B) higher IC gives higher satisfaction
(D) All of the above to the consumer
(C) No two IC will cut/ intersect/touch
21. …………… has negative slope and each other
cannot intersect each other (D) IC moves upward to the right.
(A) Isoquants
(B) Demand and supply curve 28. Which of the following is not a feature
(C) Indifference curve of Indifference curve-
(D) Both (b) and (c) (A) IC must be downward sloping to
the right
22. Indifference curve slopes down (B) The elasticity of substitution
towards right, this is because more of between two goods to a consumer
one commodity and less of another is zero.
gives - (C) Convexity of the curve is due to
(A) Same satisfaction diminishing nature of MRS
(B) Less satisfaction (D) Total effect of a change in price of a
(C) Maximum satisfaction product on its quantity demanded
(D) Infinite satisfaction is called as price effect.
23. If two goods are perfect substitute of 29. Indifference curve approach deals
each other, then Indifference curve with-
relating to two goods will be- (A) One commodity only
(A) Concave (B) Two commodities at a time
(B) Curvilinear (C) Multiple commodities at a time
(C) Parallel to X axis (D) No commodity at all
(D) Linear
24. If two goods are perfect substitute of assumption of Indifference curve
each other, then Indifference curve (A) Rationality of the consumer
relating to two goods will be- (B) Ordinal measurement of
(A) Convex with constant MRS satisfaction
(B) Straight line with constant MRS. (C) Cardinal measurement of utility
(C) Straight line parallel to Y axis (D) Consistent consumption pattern
(D) Concave to the origin behaviour of the consumer
25. Indifference curve is- 31. If an indifference curve is L shaped,

(A) Convex to the origin then two goods will be-
(B) Concave to the origin (A) Perfect Substitute goods
(C) Parallel to X axis (B) Perfect Complementary goods
(D) Parallel to Y axis (C) Substitute goods
(D) Complementary goods
26. Which of the following is the feature of
Indifference curve- 32. ………… depicts complete picture of
(A) IC curve is negatively sloped customer’s taste and preferences
(B) IC is convex to the origin (a) Supply curve
(C) All the combination on an IC gives (b) Budget line
same satisfaction to the consumer (c) Indifference map

(d) Demand curve
40. No two Indifference curve can/
33. The farther the IC is from the Origin, intersect each other. This statement
then- is-
(A) The lower is the satisfaction level (A) True
(B) The higher is the satisfaction level (B) False
(C) Same satisfaction level will be (C) Partially true
obtained (D) Cannot be commented at all
(D) Nothing can be said
41. General assumption in consumer
34. A set of indifference curves is called as behavior under Indifference curve
…………. analysis is that more goods are
(a) Price map preferred to less of them. This
(b) Consumer preference statement is
(c) Budget line (a) True
(d) Indifference map (b) False
(c) Partially true
35. Lower Indifference curve shows- (d) Cannot be commented at all
(A) Higher satisfaction
(B) Similar satisfaction 42. Generally Marginal rate of substitution
(C) Equal satisfaction shows-
(D) Lower satisfaction (A) Increasing trend
(B) Decreasing trend
36. Combination lying on higher (C) Constant trend
Indifference curve contains more of- (D) No trend at all
(A) One commodity only
(B) More of both commodity 43. Indifference curve is convex to the
(C) Either (a) or (b) origin because of-
(D) Neither (a) nor (b) (A) Increasing trend of MRS
(B) Decreasing trend of MRS
37. ……………..indicates how much of one (C) Constant trend of MRS
commodity is substituted for how (D) No trend of MRS
much of another commodity
(A) Marginal utility 44. ………….. Shows all those
(B) Marginal income combinations of two goods which a
(C) Marginal rate of substitutions consumer can buy spending his given
(D) Marginal cost money income on two goods at their
given prices.
38. Marginal rate of substitution is (A) Budget line
indicated by- (B) Indifference curve
(A) Slope of Indifference curve at a (C) Demand curve
particular point. (D) Supply curve
(B) Angle between IC and X axis.
(C) Angle between IC and Y axis 45. Every point on Budget line represents
(D) None of the above ….. spending by the consumer
(A) Over
39. Marginal rate of substitution indicates (B) Under
movement- (C) Full
(A) From higher IC to Lower IC (D) Any of the above
(B) From Lower IC to Higher IC
(C) Along the Same IC 46. In order to get maximum satisfaction,
(D) Any of the above the consumer as to work under some

constrains. These constrains are (B) Three
explained by- (C) Many
(A) Price line (D) None of the above
(B) Budget line
(C) Price opportunity line 54. As the consumer’s income and
(D) All of the above spending increase, the price/ budget
line
47. If Marginal rate of substitution is (A) Remains at the same level
increasing then shape of Indifference (B) Shifts towards the origin
curve is- (C) Shifts away from the origin
(A) Concave to the origin (D) None of the above
(B) Convex to the origin
(C) L shaped 55. As per Indifference curve analysis, in
(D) None of the above order to maximise satisfaction, a
consumer will try to-
48. Decreasing MRS makes the (a) Reach to higher IC possible
indifference curve- (b) Reach to lowest IC possible
(A) Concave to the origin (c) Will remain on same IC
(B) Parallel to X axis (d) IC has no relation with consumer’s
(C) Parallel to Y axis satisfaction
(D) Convex to the origin
56. The consumer’s objective of reaching
49. Budget line is also called as highest Indifference curve and
(A) Price line maximising satisfaction is restricted
(B) Price opportunity line by-
(C) Price income line (a) Totality utility curve
(D) All of the above (b) Marginal utility curve
(c) Marginal rate of substitutions
50. Budget line/ price line of a consumer (d) Price line
is-
(A) Parallel to X axis 57. The consumer is in equilibrium at a
(B) Parallel to Y axis point where the Budget line-
(C) Straight line joining two axis (A) Cut an indifference curve
(D) None of the above (B) Is tangential to an indifference
curve
51. If a combination is below price line, it (C) Is below Indifference curve
indicates that there is- (D) Is above the Indifference curve
(A) Over utilisation of resources
(B) Under utilisation of resources 58. The consumer is in equilibrium when -
(C) Optimum utilisation of resources (A) He save at least one-third of his
(D) None of the above income
(B) EMI is less than Salary of
52. If a combination is above price line, it consumer
indicates that there is (C) Slope of price line is equal to slope
(A) Over utilisation of resources of Indifference curve
(B) Optimum utilisation of resources (D) Any of the above
(C) under utilisation of resources ,
(D) None of the above 59. When the consumer is at equilibrium
point on Indifference curve, which of
53. Budget line shows all the combination the following equation is satisfied
of……. products (A) MRSXY=MUX/MUY= PX/PY
(A) Two (B) MUX/PX= MUY/PY

(C) MRSXY=MUX/MUY<PX/PY marginal utility of the product B is 50,
(D) None of the above assuming that the consumer is at
equilibrium?
60. At equilibrium point on Indifference (a) 100
curve which of the following is (b) 25
satisfied? (c) 250
(A) Slope of price line < Slope of IC (d) 4
(B) Slope of price line = Slope of IC
(C) Slope of price line > Slope of IC
(D) Any of the above
1. C 23. D 47. A
2. C 24. B 48. D
61. Under Income effect, the consumer
3. B 25. A 49. D
will-
4. B 26. D 50. C
(A) Moves along original Indifference
5. A 27. D 51. B
curve
6. C 28. B 52. A
(B) Moves to higher or lower
7. C 29. B 53. A
Indifference curve
8. B 30. C 54. C
(C) Always purchase higher quantity
9. C 31. B 55. A
of both the commodities
10. A 32. C 56. D
11. B 33. B 57. B
12. A 34. D 58. C
13. D 35. D 59. A
assumption in consumer equilibrium
14. C 36. C 60. B
analysis under Indifference curve
15. D 37. C 61. B
approach
16. C 38. A 62. D
(a) There is a given Indifference map
17. A 39. C 63. B
with difference level of satisfactions
18. C 40. A 64. C
(b) Income of the consumer is fixed
19. A 41. A 65. B
(c) Price of the commodity is constant
20. D 42. B
(d) Only one commodity is considered
21. C 43. B
for the purpose of the analysis
22. A 44. A
45. C
63. In consumer Equilibrium analysis
46. D
under Indifference curve approach, the
consumer is assumed to spend his
income............. on two goods
(a) Keeping 20 % Margin
(b) Wholly Hint
(c) Partially
(d) Either (b) or (c) Q 64
At Equilibrium
64. MUx of X is 100 and MUy is 300. If the MUX/MUY= PX/PY
price of Y is 6000, what will be the ∴ 100/300= PX/6000
price of X at Equilibrium? ∴ Px=2000
(a) 6000
(b) 9000 Q 65
(c) 2000 At Equilibrium
(d) 4000 MUA/MUB= PA/PB
∴ MUA /50= 10/20
65. What will be the Marginal utility of ∴ MUA = 25
Product A, if the prices of A and B are
10 and 20 respectively, and the


1. is the want satisfying power 7. Which of the following is an important
of the product. aspect in Demand?
a) Demand (a) Ability to buy the product
b) Utility (b) Willingness to spend
c) Supply (c) Availability of the product in the
d) None of these market
2. refers to refers to the 8. In the context of Demand, the
quantity of goods or servicesthose availability of money with the
Consumers are willing and able to Consumer, in order to purchase
purchase / buy in a given market, at the Commodity is called —
various prices, in a given period of (a) ) Consumer Surplus
time. (b) ) Purchasing Power
(a)Su p p l y
(c) Cost of living
( b ) D e ma nd
(a) U t i l i ty
(d) ) Standard of living
( d ) Surp l us 9. Purchasing Power refers to —
(a) ) Availability of money with
3. Demand refers to the quantity of goods
the Consumer to purchase the
or services, that are willing and
Commodity
able to purchase / buy in a given
(b) ) Availability of money with the
market, at various prices, in a given
Producer to produce the Commodity
period of time.
(c) Availability of goods in the market
( a) Producers
(d) ) Availability of substitute goods
( b) Investors
( c) Consumers 10. Purchasing Power refers to —
( d) Government
4 Demand for a commodity refers to — a) Desire to buy the product
(a) Desire for the commodity b) Necessity to buy the product
(b) Need for the commodity c) Ability to buy the product
(c) Quantity demanded of that d) Utility of the product
commodity 11. Purchasing power of money fall when
(d) Quantity of the commodity
demanded at a certain price a) Price level increases
during any particular period of b) Price level decreases
time c) Income level increases
d) Money supply falls
5. On which of the following the Effective
Demand for a thing depends? 12. Unless Demand is backed by
(a)D es ir e
purchasing power or ability to pay, it
( b ) Means to purchase (Ability to
does not constitute Demand. This
Buy) statement is —
(a) True
( c ) Willingness to use those means
(b) False
( d ) All of these
(c) Partially True
6. For want to become an Effective (d) Nothing can be said
Demand, it must be backed by the —
( a) Ability to buy the product
13. In the context of Effective Demand,
(b) ) Necessity to buy the product
Willingness to spend means —
(c) Desire to buy the product
(d) ) Utility of the product (a) Availability of Money with
Consumers
(b) Readiness to use available money 21. Demand for Resources and Factors of
for purchasing a Commodity Production is –
a) Direct Demand
b) Derived Demand
For Demand to be effective, the c) Irrelevant in Economics
Commodity should be available — d) Not a Demand at all
(a) At a certain price
22. The demand for factors of production is
(b) At a certain place
demand
(c) At a certain time
a) Fundamental
b) Derived
15, Demand arises in respect of c) Market
(a) Socially desirable goods, e.g. food, d) J o i nt
clothing INDIVIDUAL AND MARKET DEMAND
(b) Harmful goods, e.g. liquor
cigarettes, etc. 23. Individual Demand is also called —
(c) Both (a) and (b) (a) Industrial Demand
(d) Neither (a) nor (b) (b) MarketDemand

(c) Household Demand
16. Demand arises in respect of — (d) All of the above
(a) Capital Goods only
(b) Consumer Goods only )4. Household Demand is also called —
(c) Both (a) and (b) (a) ProducerDemand
(d) Neither (a) nor (b) (b) Individual Demand
17. Demand arises in respect of — (c) IndustryDemand
(a) Agricultural Commodities only (d) MarketDemand
(b) Industrial Goods only
(c) Both (a) and (b) 25. Individual Demand shows the quantities
(d) Neither (a) nor (b) of demand for a commodity at various
prices by —
18. Demand arises in respect of — (a) A particular consumer
(a) Tangible Goods and Commodities (b) The entiremarket
only (c) Both (a) and (b)
(b) Intangibles and Services only (d) Neither (a) nor (b)
(d) Neither (a) nor (b) 26, Industry Demand is also called -
(a) Household Demand
19. Demand for Final Consumption arises in — (b) Market Demand
(a) Household Sector only (c) Individual Demand
(b) Government Sector only (d) All of the above
(c) Both Household and Government 27. Market Demand is also called —
Sectors (a) Producer Demand
(d) Neither Household nor Government (b) Individual Demand
Sector (c) Industry Demand
(d) Household Demand
20. Demand for Intermediate Consumption
arises in — 28. Market Demand shows the quantities of
(a) Household Consumers demand for a commodity at various prices
(b) Government Enterprises only by —
(c) Corporate Enterprises only (a) a particular consumer
(d) All Producing Sectors of the (b) the entire market
economy (c) Both (a) and (b)
29. Market Demand is the sum total of —

(a) All quantities that Producers can
produce
(b) All quantities actually sold in the
market
(c) All quantities demanded byindividual
households and consumers
30. is the sum total demand of all individuals in

'`the market.
(a) Individual Demand
(b) Market Demand
(c) Household Demand
(d) Firm Demand
31. If A = Household Demand and B = Market

Demand, then —
(a) A> B
(b ) A< B
(c) A=B= 0
(d ) None of the above
32. If Household Demand and Market
Demand are equal in a situation, it means
that —
(a) There is only one Producer
(b) There is only one Consumer
36. A relative price is 44. Goods covered by Demonstration Effect can be
(a) Price expressed in terms of money best described as -
(b) What you get paid for baby-sitting your cousin (a) Necessities of Life
(c) The ratio of one money price to another (b) Conspicuous Necessities
(d) Equal to a money price (c) Absolute Luxuries
37. Which of the following influence most the
price level in the very short—run period? 45. In which of the following will the
(a) Demand Demonstration Effect be high?
(b) Supply (a) Water
(c) Cost (b) Rice
(d) Production (c) Cellphone
(d) Plant and Machinery
38. Which of the following is not a determinant of
Demand? 46. are goods which are consumed
(a) Price of the Commodity together or simultaneously.
(b) Price of Related Commodities (a) Inferior Goods
(c) Level of Consumers' Income (b) Normal Goods
(d) None of these (c) Complementary Goods
(d) Substitute Goods
39. All of the following are determinants of
demand except 47. Complementary Goods are goods consumed —
(a)Tastes and Preferences (a) Only when the goods are distributed as free
(b)Quantity supplied compliment to the Consumer
(c) Income (b) Together or simultaneously
(d) Price of related goods (c) In place of one another
(d) Only at high income levels of Consumer
40. Which of the following is a determinant of
Individual demand?
(a) Cost of Production 48. The demand for two—wheelers is likely to
(b) Nature of Product, i.e. socially desirable vs decrease with an increase in petrol prices because
other goods two-wheelers and petrol are
(c) Tastes and Preferences of Consumers (a) Inferior Goods
(d) Economic Policies of the Government (b) Normal Goods
(c) Complementary Goods
41 When a Consumer prefers a commodity due to (d) Substitute Goods
prestige attached to it, it is known as
(a) Substitution Effect 49. Which of these is not a Complementary Good
(b) Demonstration Effect for Pen?
(c) Income Effect (a) Refills
(d) All of the above (b) Paper
(c) Notebooks
42. When a Consumer wants a product by seeing (d) Wheat
another person use that product, it is called —
(a) Disturbance Effect 50. If an increase in the price of Blue Jeans leads to
(b) Comparison Effect an increase in the demand for Tennis Shoes, then
(c) Demonstration Effect Blue Jeans and Tennis Shoes are —
(d) Marshallian Effect (a) Complements
(b) Inferior Goods
43. Demonstration Effect is generally found in (c) Normal Goods
respect of (d) Substitutes
(a) Necessary Goods
(b) Luxury and Quasi—Luxury Goods 51. If two goods are Complements, it means that a
(c) Both (a) and (b) rise in the price of one commodity will lead to —
(d) Neither (a) nor (b) (a) Upward Shift in demand for the other
commodity
(b) Rise in the price of the other commodity
(c) Downward Shift in demand for the other (a) Only when the goods are used for a variety
commodity of purposes
(d) No shift in the demand for the other (b) Together or simultaneously
commodity (c) In place of one another
(d) Only at high income levels of
52. In case of Complementary Goods, increase in Consumer
price of a product will —
(a) Decrease the demand for the other product 59. Which of the following pairs of goods is
(b) Increase the price of the other product an example of Substitutes?
(c) Increase the demand for the other product (a) Tea and Sugar
(d) Not affect the demand for the other product (b) Tea and Coffee
(c) Pen and Ink
53. In case of Complementary Goods, (d) Shirt and Trousers
decrease in price of a product will — 60. Which of the following is an example of
(a) Decrease the demand for the other Substitutes?
product. (a) Coffee and Milk
(b) Increase the price of the other product (b) Diamond and Cow
(c) Increase the demand for the other (c) Pen and Ink
product (d) Mustard Oil and Coconut Oil
(d) Not affect the demand for the other 61. Which of the following pairs of goods in
product an example of substitutes?
(a) Tea and Sugar
54. If X and Y are Complementary Goods, the (b) Tea and Coffee
price of X and the Demand of Y are — (c) Tea and Ball Pen
(a) directly related (d) Tea and Shirt
(b) inversely related
(c) proportionally related 62 In case of Substitute Goods, increase
(d) any of the above in price of a product will —
(a) Decrease the demand for the other
55 If X and Y are Complementary Goods, if product
there is an increase in Price of X, then — (b) Increase the price of the other product
(a) Demand of X will decrease and Demand of (c) Increase the demand for the other
Y willincrease. product
(b) Demand of X will increase and Demand of (d) Not affect the demand for the other
Y willdecrease. product
(c) Demand of X and Y will increase.
(d) Demand of X and Y will decrease. 63. In case of Complementary Goods,
decrease in price of a product will —
56. If X and Y are Complementary Goods, if (a) Decrease the demand for the other
there is an decrease in Price of X, then — product
(a) Demand of X will decrease and Demand of (b) Increase the price of the other product
Y willincrease. (c) Increase the demand for the other
(b) Demand of X will increase and Demand of product
Y willdecrease. (d) Not affect the demand for the other
(c) Demand of X and Y will increase. product
(d) Demand of X and Y will decrease.
64. If X and Y are Substitute Goods, the
57 are goods which are consumed price of X and the Demand of Y are —
in place of one another. (a) Directly related
(a) Inferior Goods (b) Inversely related
(b) Normal Goods (c) Proportionally related
(c) Complementary Goods (d) Any of the above
(d) Substitute Goods
65. When the Price of a Substitute of X
58. Substitute Goods are goods which can be Commodity falls, the Demand for X —
used — (a ) Rises
(b ) Falls 72. Which of the following Statements is
(c ) Remains Unchanged not true about Individual Demand?
(d ) Any of the above. (a) The decision to purchase is always
influenced by the Income
66. If the Price of Product A increases Constraint.
relative to the Price of Substitute B & C, (b) Selection of products and services
the demand for— are based on the Opportunity Cost.
(a) B will increase
(c) Consumers measure their
(b) C will increase
Opportunity Cost in terms of the
(c) B and C will increase
price they pay for the products and
(d) B and C will decrease
services they forego.
67. If the Price of Pepsi decreases relative to (d) Decision to purchase is never
the Price of Coke and 7—Up, the demand influenced or concerned with the
for Income Constraint.
(a) Coke will decrease
(b) 7—Up will decrease 73. What effect does an increase in the
(c) Coke and 7—Up will increase price of a product have on the
(d) Coke and 7—Up will decrease
Purchasing Power of the Consumer?
(a) )
68. If Tea and Coffee are Substitutes, a fall
in the Prices of Tea leads to — Increases ( b)
(a) Rise in the demand for Tea
Decreases ( c)
(b) Fall in the supply of Coffee No effect
(c) Fall in the demand for Coffee ( d) Decreases initially, but increases
(d) Rise in the supply of Tea over a period of time
Both (ii) and (iv) above

(a) 74. The Demand for a commodity also
Both (i) and (iii) above
(b) depends upon the money income of the
(c) Both (ii) and (iii) above household. This statement is —
(d) Both (iii) and (iv) ( a ) Tr u e
69. If X and Y are Substitute Goods, if ( b ) False
there is an increase in Price of X, then ( c ) Partially True
(a) Demand of X will decrease and ( d ) Nothing can be said
Demand of Y will increase.
(b) Demand of X will increase and
75. The Demand for a commodity
Demand of Y will decrease. depends only upon the money income
of the household. This statement is —
( a ) Tr u e
( b ) F a l se
70. If X and Y are Substitute Goods, if ( c ) Partially True
there is an decrease in Price of X, then ( d ) Nothing can be said
(a) Demand of X will decrease and
Demand of Y will increase. 76. If demand decreases with an increase
(b) Demand of X will increase and
in money income of Consumers, such
Demand of Y will decrease. goods are called —
(a) Normal Goods
(b) Inferior Goods
(c) Luxury Goods
71 In which phase of the business cycle to (d) All of the above
Producers try to sell out their
inventories? 77. Giffen Goods are —
(a) ) (a) Normal Goods
Recession ( b) (b) Inferior Goods
Prosperity ( c) (c) Luxury Goods
Boom (d) All of the above
( d) Recovery
78. Inferior Goods are also called
(a) ) Giffen Goods 84. Generally, larger size of population of a
(b) ) Marshallian country or a region implies ....... for all
Goods ( c) Hicks and Allen commodities as such.
Goods ( d) Normal (a) Higher demand
Goods (b) Lower demand
(c) No demand
79. The Giffen Effect in respect of Inferior (d) Ineffective demand
Goods was observed in the case of — 85. In case of unequal distribution of
(a) Rice and Wheat income in the country, the propensity to
(b) Wheat and Meat consume will be ...., and demand for
(c) Bread and Meat Consumer Goods will be
(d) Bread and Rice (a) Higher, lower
(b) Higher, higher
80. As income levels increase, the
(c) Lower, higher
demand for goods satisfying
(d) Lower, lower
Necessities of life, will be to the
increase in income. 86. If the Consumers expect an increase in
(a) Less than proportionate prices of the product in the future, its
(b) More than proportionate current demand will be
(c) Proportionate (a) )
(d) Nothing can be said Higher ( b)
LoWer ( c)
81. If Income Levels increase, and the Nil
demand for goods increase by less ( d) Nothing can be said
than proportionate extent, such goods
will be — 87. If the Consumers expect a decrease in
(a) Inferior Goods
prices of the product in the future, its
current demand will be —
(b) Necessary Goods
(a) ) higher
(c) Luxury Goods
(b) ) lower
(c) ) Nil
82. If Income Levels increase, and the (d) ) Nothing can be said
demand for goods increase by more than
proportionate extent, such goods will be — 88. Demand is affected by weather
(a) Inferior Goods conditions and seasonal aspects also.
(b) Necessary Goods This statement is —
(c) Luxury Goods (a) Tr ue
(d) Nothing can be said (b) False
(c) Partially True
83. As Income Levels increase beyond a (d) Nothing can be said
certain extent, the propensity to
consume — 89. Demand for Air Conditioners, Water
(a) ) Reduces Coolers, Refrigerators show an increase
(b) ) Increases
during —
(a) Winter
(c) ) Remains constant
(d) ) Becomes zero (b) Summer
(c) Spring
(d) All Seasons
DEMAND CURVE (c) Infinity Slope
1. Demand Schedule shows the relation between 10. Demand Curve—
— (a) Will be a Straight Line
(a) Price and Quantity supplied (b) Will be a Curve
(b) Price and Quantity demanded (c) Either (a) or (b)
(c) Income and Quantity supplied (d) Neither (a) nor (b)
(d) Income and Quantity demanded
11. All but one of the following are assumed to
2. In a typical Demand Schedule, quantity
remain the same while drawing an
demanded —
individual's Demand Curve for a product.
(a) varies directly with price.
Which one is it?
(b) varies proportionately with price.
(a) Preference of the individual
(c) varies inversely with price.
(b) His monetary income
(d) is independent of price.
(c) Price
3. indicates the changes in Consumers' (d) Price of related goods
purchasing habits, depending on the price
variation of a particular product. 12. If regardless of changes in its price, the
(a) Total Utility Curve quantity demanded of a product is unchanged,
(b) Demand Schedule then, Demand Curve for that product will be —
(c) Production Possibility Curve (a) Horizontal
(d) Purchasing Power Parity (b) Vertical
(c) Positively Sloped
4. A Demand Curve shows —
(d) Negatively Sloped
(a) Quantity demanded of a product at
various
13. If any quantity at the same price, then, the
levels of income of the Consumer.
Demand Curve for that product will be —
(a) Horizontal
(b) Quantity demanded of a product, at (b) Vertical
various levels of price of the product (c) Positively Sloped
(c) Amount of money spent by a Consumer (d) Negatively Sloped
on a product at various levels of price
(d) Quantity supplied of a product at various 14. What is the other name given to the Demand
levels of price of the product Curve?
(a) Profit Curve
5. A Demand Curvedeals with — (b) Average Revenue Curve
(a) One product at a time (c) Average Cost Curve
(b) Two products at a time (d) Indifference Curve
(c) Many products at a time
(d) None of the above 15. What is the other name given to the
Average Revenue Curve?
6. While drawing the Demand Curve, the change (a) Profit Curve
takes place in which of the following factors? (b) Demand Curve
(a) Supply of the product (c) Average Cost Curve
(b) Quality of the product (d) Indifference Curve
(c) Price of the product
(d) Technology used in offering the 16. Why is the Demand Curve otherwise known
product as the Average RevenueCurve?
(a) Price paid for each unit by the Consumer, is
7. Generally, the Demand Curve slopes — the Average Revenue per unit for the Seller
(a) Downward from left to right (b) Price paid for each unit by the Consumer,
(b) Upward from left to right is the Total Revenue for the Seller
(c) Upward from right to left (c) Price paid by Consumer is equal to the
(d) Downward from right to left Seller's willingness to sell the product.
8. Demand Curve in most cases slopes—
(a) Upward towards left 17. The Total Area under the Demand Curve
(b) Vertical and parallel to Y—axis of a product measures —
(c) Downward towards right (a) Marginal Utility
(d) Horizontal and parallel to X—axis (b) Total Utility
9. Demand Curve in most cases has a — (c) Consumer's Surplus
(a) Positive Slope (d) Producers' Surplus
(b) Negative Slope Zero Slope
18. If Marginal Utility of .a product remains (a) A quantitative statement
constant, the Demand Curve will be — (b) A qualitative statement
(a) Convex (c) Both (a) and (b)
(b) Concave (d) Neither (a) nor (b)
(c) Straight line
(d) None of the above 27. The Law of Demand is a —
(a) Positive Statement
19. In a Demand Curve, the Horizontal Axis will be (b) Normative Statement
— (c) Both (a) and (b)
(a) Quantity Demanded (d) Neither (a) nor (b)
(b) Price of the Product
(c) Income Levels of Consumer 28. The Law of Demand is a principle relating to—
(d) Any of the above (a) Micro—Economics
(b) Macro—Economics
20. In a Demand Curve, the Vertical Axis will be — (c) Both (a) and (b)
(a) Quantity Demanded (d) Neither (a) nor (b)
(b) Price of the Product
(c) Income Levels of Consumer 29. The term "Ceteris Paribus" in the Law of
(d) Any of the above Demand denotes —
(a) All factors remaining constant
21. Which of these is not depicted in a typical (b) All factors except one remaining
Demand Curve? constant
(a) Quantity Demanded (c) All factors being variable
(b) Price of the Product (d) All of the above
(c) Income Levels of Consumer 30. Which of these is a variable factor in the
(d) None of the above Law of Demand?
(a) Consumers' Income Level
22. The Law of Demand is explained by — (b) Economic Conditions of Boom /
(a) Cardinal Approach Recession
(b) Ordinal Approach (c) Quality of the Product
(c) Both (a) and (b) (d) Price of the Product
31. The condition "other things being equal" in
23. Which of the following can be regarded as the Law of Demand denotes —
law of Demand? (a) Price of related goods remaining
(a) Ceteris Paribus, if Price of a product rises, constant
its quantity demanded will fall (b) Income Levels remaining constant
(b) Higher the Income, greater is the (c) Tastes and Preferences remaining
expenditure constant
(c) Taxes have no relation with the benefits (d) All of the above
which a person derives from the State
32. What type of relationship exists between Price
and Quantity Demanded?
24. The Law of Demand, assuming other (a) )
things to remain constant, establishes the Direct ( b)
relationship between — Inverse ( c)
(a) Income of the Consumer and the quantity
Positive
( d) Positional
of a good demanded by him
(b) Price of a good and the quantity 33. As per the Law of Demand, if the Price of
demanded a commodity , its Demand .......
(c) Price of a good and the demand for (a) Increases, Decreases
its Substitute (b) I n c r e a s e s , I nc re a s e s
(d) Quantity demanded of a good and the (c) Decreases, Increases
relative prices of its complementary goods (d) Both (a) & (c)
25. The Law of Demand refers to — 34. Why does the Law of Demand operate?
(a) Price—Supply relationship (a) Income Effect
(b) Price— Cost relationship (b) Substitution Effect
(c) Price—Demand relationship (c) Both (a) and (b)
(d) Price—Income relationship. (d) Neither (a) nor (b)
35 The total effect of a price change of a

26. The Law of Demand is — commodity is
(a)Substitution Effect + Price Effect 42. When the price of a Commodity falls, the
(b)Substitution Effect + Income Effect Consumer
(c)Substitution Effect + Demonstration (a) Can buy the same quantity of the
Effect commodity with lesser money
(d) Substitution Effect minus Income (b) Can buy more of the same commodity with
Effect the same money
When we say that the Demand for a commodity (c) Both (a) and (b)
depends upon the money income of the (d) Neither (a) nor (b)
Consumer, we are referring to —
(a) Income Effect
(b) Substitution Effect 43. When the price of a Reynolds pen
(c) Demonstration Effect falls, ceteris paribus, Buyers substitute
(d) Utility Effect Reynolds Pen for other pens that are now
relatively more expensive. This is called —
37 refers to the effect of a change in the price of
a product on the Consumer's purchasing power. (a) Price Effect
(a) Law of Equl—Marginal Utility (b) Substitution Effect
(b) Income Effect (c) Income Effect
(c) Substitution Effect (d) Veblen Effect
(d) Consumer Surplus 44. The 'Substitution Effect' takes place due to
change in
38. As a result of a fall in prices of the commodity,
(a) Income of the Consumer
the Consumer's increases.
(b) Prices of the Commodity
(a) Real Income
(c) Relative Prices of the commodities
(b) Purchasing Power
(d) Neither (a) nor (b) 45. refers to the Consumer's Reaction to a change
in
39. If there is a decrease in the prices of a product,
the relative prices of two products, keeping the
the Consumer's Real Income — Total Utility constant.
(a) Increases
(a) Consumer Surplus
(b) Decreases
(b) Income Effect
(c) Remains constant
(c) Substitution Effect
(d) Law of Diminishing Marginal
Utility
40. When increase in his Real Income
induces a Consumer to buy more of a 46. When the price of a product increases,
Commodity whose prices has fallen, it is called Consumers tend to switch to purchasing the
— substitutes of the product. This describes why
(a) Inducement Effect
the Demand Curve for the good —
(b) Substitution Effect
(a) Shift downward to the left
(c) Income Effect
(b) Shift upward to the right
(d) Utility Effect
(c) Slopes downward to the right
(d) Slopes downward to the left
41. Which of the following statements best describes
the Income Effect? 47. Which of the following statement best describes
(a) It is the change in quantity demanded
the Substitution Effect?
as a result of the changes in the income, (a) When the price of a product rises,
keeping other things constant Consumers stop consuming the product.
(b) It is the change in quantity demanded
(b) When the price of a product rises,
of substitute goods, as a result of change Consumers tend to substitute it with a
in the price of a product, keeping the relatively expensive product
income constant (c) When the price of a product rises,
(c) It is the change in quantity demanded of
Consumers tend to substitute it with
a product, as a result of change in the a relatively inexpensiveproduct
real income because of change the price (d) When the price of a product fails,
of the product consumers tend to substitute in with a
(d) It is the change in the price of a good
more expensive product
because of a rise or fail in the real
income of the consumer 48. In normal circumstances, if the
Government increases the tax on any
product, the demand for the product in the (c) Giffen Goods
short run (d) Basic Goods
(a) Increases
(b) Decreases 56. Conspicuous goods are also called as:
(c) Remain unchanged (a) ) Veblen
(d) Tax has nothing to do with the (b) ) Snob
demand for any product (c) ) Prestigious
(d) ) All of the above
49. The segregation between Income Effect
and Substitution Effect is adequately 57. Conspicuous Goods —
explained by — (a) Are an exception the Law of Demand
(a) Cardinal Approach (b) Follow the Law of Demand
(b) Ordinal Approach (c) Either (a) or (b)
(c) Both (a) and (b) (d) Neither (a) nor (b)
58. In case of Conspicuous Goods, as the
50. When the price of a product falls, its
Price increases, the quantity demanded
Demand increases because —
thereof —
(a) New Consumers start buying the
(a) Increases
product
(b) Decreases Remains constant
(b) Existing Consumers buy more quantities of
the product (c) Becomes zero
(d) Neither (a) nor (b) 59. When Consumers feel that if the
commodity is expensive, that it has got
51. The Law of Demand is explained by — more utility, we are referring to —
(a) Law of Diminishing Marginal Utility (a) Inferior Goods
(b) Law of Indifference Curves (b) Normal Goods
(c) Both (a) and (b) (c) Conspicuous Goods
(d) Neither (a) nor (b) (d) Giffen Goods
52. Under the Law of Diminishing Marginal 60. Which of the following is an example of
Utility, Consumers continue buying till Price Conspicuous Goods?
equals Marginal Utility. Hence at lower prices (a) Diamonds
— (b) Cooking Gas
(a) Higher quantities will be demanded (c) Petrol
(b) Lower quantities will be demanded (d) Rice
(c) No quantities will be demanded
(d) All of the above 61. Which of the following is not an exception to
the Law of Demand?
53. Since Consumers continue buying till Price (a) Conspicuous Goods
equals Marginal Utility, if the price of a product (b) Normal Goods
is lower, the Consumer will attain equilibrium (c) Conspicuous Necessities
— (d) Giffen Goods
(a) At a lower quantity level
(b) At a higher quantity level 62. If the demand for Petrol remains the same
(c) At zero quantity level even after the increase in petrol prices, it
(d) All of the above means Petrol is a —
(a) Normal Good
54. Under the Indifference Curve approach, if the (b) Necessity
price of a product is lower, the Consumer (c) Luxury Good
will attain equilibrium — (d) Inferior Good
(a) At a higher Indifference Curve
(b) At a lower Indifference Curve 63. In the case of a Giffen Good, the Demand
(c) At the origin point Curve will be
(d) At infinity (a) Horizontal
(b) Downward—sloping to the right
EXCEPTIONS TO THE LAW (c) Backward falling to the left
(d) Upward—sloping to the right
55. Conspicuous Goods are also called —
(a) Necessary Goods 64. Giffen Goods are those goods —
(b) Prestige Goods (a) For which Demand increases as Price
increases
(b) Which have a high income elasticity of (d) All of the above
demand
(c) Which are in short supply 73. Under which of the following situations the
(d) None of these Law of Demand will not operate?
(a) Increase in Consumers' Income
65. In case of Giffen Goods, Demand Curve will Levels
slope —
(b) Change in Tastes and Preferences
(a) Upward
(b) Downward
(c) Horizontal
(d) Vertical
EXPANSION / CONTRACTION OF DEMAND
66. An Inferior Commodity is one which is
consumed in smaller quantities when the 74. Expansion and Contraction of demand for
income of consumer — a good occurs as a result of —
(a) Becomes nil (a) Change in Price of the Commodity
(b) Remains the same (b) Change in Quality of the Commodity
(c) Falls (c) Availability of Cheaper Substitutes
(d) Rises (d) Increase in Consumer Income
67 Giffen Goods are goods which —

75. In case of Expansion and Contraction of
(a) Are considered inferior by Consumers
Demand, the Demand Curve —
(b) Occupy a substantial place in the
(a) ) Shifts to the right
Consumer's budget
(b) ) Shifts to the left
(c) ) Both (a) and (b)
(c) ) Remains the same
(d) ) Neither (a) nor (b)
(d) ) None of the above
68. Giffen Goods are — 76. Fall in quantity demanded of a product as a

(a) Conspicuous Goods
result of rise in price is known as —
(a) ) Change in Demand
(b) Normal Goods
(b) ) Contraction of
(c) Conspicuous Necessities
(d) Inferior Goods Demand ( c) Expansion of
Demand ( d) Alteration of
69. When people buy more of a product when Demand
its price goes up, the product will be —
77. Rise in quantity demanded of a product as a
(a) Conspicuous Goods
result of reduction in price is known as —
(b) Normal Goods
(c) Inferior Goods (a) ) Change in Demand
(d) Luxury Goods (b) ) Contraction of
Demand ( c) Expansion of
70. When due to their constant usage, certain Demand ( d) Alteration of
goods have become necessities of life, they Demand
are referred to as —
78. Contraction of Demand is the result of —
(a) ) Conspicuous Goods
(a) Decrease in number of Consumers
(b) ) Normal Goods
(b) Increase in Price of the product
(c) ) Conspicuous Necessities
concerned
(d) ) Giffen Goods
(c) Increase in Prices of other goods
(d) Decrease in Incomes of Purchasers
71. Under which of the following situations the
Law of Demand will not operate? 79. Expansion of Demand is the result of —
(a) ) Conspicuous Goods (a) Increase in number of Consumers
(b) ) Giffen Goods (b) Decrease in Price of the product
(c) ) Absolute Necessities concerned
(d) ) All of the above (c) Decrease in Prices of other goods
(d) Increase in Incomes of Purchasers
72. Under which of the following situations the
Law of Demand will not operate? 80. A movement along the Demand Curve for
(a) Price Change expected by Consumer soft drinks is best described as —
(b) Consumer's lack of knowledge about (a) Increase in Demand
prices (b) Decrease in Demand
(c) Irrational purchasing pattern by (c) Change in quantity demanded
Consumer (d) Change in Demand
81. In case of Expansion of Demand, there is a INCREASE OR DECREASE IN DEMAND
—
(a) Inward shift of the Demand Curve 89. Change in Demand as a result of the factors
(b) Outward shift of the Demand Curve
other than Price is known as —
(c) Upward movement on the same
(a) Shift in Demand
Curve (b) Increases and Decrease in
(d) Downward movement on the same
demand
(c) Change in Demand
Curve
(d) All of these
82. In case of Contraction of Demand, there is a
90. Increase in Demand leads to —
—
(a) Inward shift of the Demand Curve
(c) Upward movement on the same Curve
(c) Upward movement on the same
Curve
Curve
Curve 91. Decrease in Demand leads to —
83. In case of Expansion of Demand, the
quantity demanded —
(c) Upward movement on the same Curve
(a) ) Increases
(b) ) Decreases
Curve
(c) ) Becomes zero
(d) ) Becomes constant 92. Which of the following results in a shifting of
the Demand Curve?
84. In case of Contraction of Demand, the
(a) Increase in the tax on cigarettes leading to
quantity demanded —
their fall in demand
(a) ) Increases
(b) Slashing of ad rates by a television
(b) ) Decreases channel resulting in a rise in the number
(c) ) Becomes zero
of ads
(d) ) Becomes constant
(c) Rise in the electricity harges leading to
85. Expansion of Demand is associated with — lesser consumption
(d) All of these
(a) Rise in Price, Rise in quantity
demanded 93. In which of the following cases, does a shift
(b) Fall in Price, Fall in quantity in demand take place?
demanded (a) Fall in demand for cigarettes, as a result
(c) Fall in Price, Rise in quantity of increased taxes
demanded (b) Rise in the demand for two wheelers due
(d) Rise in Price, Fall in quantity to decrease in the sales tax
demanded (c) Decline in electric power consumption
86. Contraction of Demand is associated with — due to rise in the power charges
(a) Rise in Price, Rise in quantity (d) Decline in the sales of Diwali crackers
demanded due to sudden rains and floods
(b) Fall in Price, Fall in quantity demanded 94. Change in demand, as a result of the factors
(c) Fall in Price, Rise in quantity demanded other than price is known as —
(d) Rise in Price, Fall in quantity demanded (a) Demand Fluctuation
(b) Contraction / Expansion of Demand
87. Expansion and Contraction of demand for a
(c) Demand Shrinking
product occurs as a result of changes in —
(d) Shift in Demand
(a) Price of the Commodity
(b) Factors other than Price 95. Shift in demand does not take place due to —
(c) Both (a) and (b) (a) Change in the price of the product
(d) Neither (a) nor (b) (b) Change in the tastes and preferences
(c) Change in consumer habits
88. Change in demand due to change in price is
(d) Change in population
known as
96. An Increase in Demand can result from —
(a) Change in demand
(a) Decline in Market Price
(b) Change in quantity demanded
(b) Increase in Income
(c) Income demand
(c) Reduction in the Price of Substitutes
(d) Cross demand
(d) Increase in the Price of Complements
97. A Decrease in Demand can result from — (d) Contraction of Demand
(a) Increase in Market Price
(b) Decrease in Income 105. An Increase in the price of Complementary
(c) Increase in the Price of Substitutes Goods leads to —
(d) Decrease in the Price of Complements (a) ) Increase in Demand
(b) ) Decrease in Demand
98. A drought in India leads to unusually low level of
(c) ) Expansion of Demand
wheat production. This would lead to a rise in
(d) ) Contraction of Demand
the price of wheat and fall in the quantity of
wheat demanded due to 106. Increase in Income Levels of Buyers leads to
(a) Excess Demand at the original price —
(b) Excess Supply at the original price
(a) Increase in Demand
(c) Supply Curve shifting to the right
(b) Decrease in Demand
(d) Demand Curve shifting to the left
(c) Expansion of Demand
99. Suppose consumer tastes shift toward (d) Contraction of Demand
the consumption of apples. Which of the
107. Decrease in Income Levels of Buyers leads
following statements is an accurate
description of the impact of this event on the to —
market for apples? (a) ) Increase in Demand
(b) ) Decrease in Demand
(a) There is an increase in quantity
(c) ) Expansion of Demand
demanded of apples and in supply of
(d) ) Contraction of Demand
apples.
(b) There is an increase in the demand and
supply of apples. 108. Which of the factors does not cause
(c) There is an increase in the demand for Increase in Demand?
apples and a decrease in supply of apples. (a) Rise in the price of Substitute Goods
(d) There is an increase in the demand for (b) Fall in price of this product
apples and an increase in the quantity (c) Increase in population
supplied (d) Increase in Income Levels of Buyers
100. In case of Shift in Demand,remains 109. Increase in Demand is caused by —

constant. (a) Change in Buyer Preferences and
(a) Income of Consumers
Tastes in favour of this commodity
(b) Tastes and Preferences of
(b) Re—distribution of income to
Consumers
Consumers who favour this commodity
(c) Price of the Product
(c) Increase in population
(d) Quality of the Product
(d) All the above
101.Rise in the price of Substitute Goods leads to
—
(a) Increase in Demand 110. Which of the factors does not cause
(b) Decrease in Demand Decrease in Demand?
(c) Expansion of Demand (a) Fall in the price of Substitute Goods
(d) Contraction of Demand (b) Rise in price of this product
102. Fall in the price of Substitute Goods leads to — (c) Decrease in population
(a) Increase in Demand (d) Decrease in Income Levels of Buyers
(c) Expansion of Demand 111. Decrease in Demand is caused by —
(d) Contraction of Demand (a) Change in Buyer Preferences and Tastes
103. Other things being equal, a fall in the against this commodity
price of complementary good will cause (b) Re—distribution of income away from
the of the other to rise. Consumers who favour this commodity
(a)P r i c e (c) Decrease in population
( b ) Supply (d) All the above
( c ) Demand
( d ) Utili ty
104. A Decrease / Fall in the price of

Complementary Goods leads to —
(a) Increase in Demand
(c) Expansion of Demand
C. ELASTICITY OF DEMAND — MCQs 8. Price Elasticity of Demand is defined as —
ELASTICITY BASICS (a) Change in quantity demanded ÷ Change
in price
1. The concept of Elasticity of Demand was (b) Proportionate change in quantity
developed by — demanded ÷ Change in Price
(a) Alfred Marshall (c) Change in quantity demanded ÷
(b) Edwin Cannon Proportionate change in Price
(c) Paul Samuelson (d) Proportionate change in quantity
(d) Fredric Bonham demanded Proportionate change in price
2. Two important factors which make difference 9. Price Elasticity of Demand is defined as
in the Elasticity of Demand for different the responsiveness of —
commodities are (a) Price to a change in quantity
(a) Preferences and Income demanded
(b) Income and Expenditure (b) Quantity demanded to a Change in
(c) Quantity and Price of the Commodity Price
(d) Tax Rates and Level of Income (c) Price to a Change in Income
(d) Quantity demanded to a change in
3. Elasticity of Demand refers to — income
(a) The responsiveness of the quantity
demanded of a commodity, to changes in 10. Price Elasticity of Demand for a product is —
one of the variables on which demand (a) Change in the quantity demanded of the
depends. product when price increases by 30%
(b) The percentage change in quantity (b) Percentage increase in the quantity
demanded, divided by the percentage demanded of the product when the price
change in one of the factors on which falls by 1%
demand depends. (c) Increase in the demand for the product
(c) Both (a) and (b) when its price falls by 10%
(d) Neither (a) nor (b) (d) Decrease in the quantity demanded of
the product when its price falls by 1%
4. Elasticity of Demand is attributed to —
(a) Changes in Prices 11. Price Elasticity of Demand is given by —
(b) Changes in Incomes (a) Ap/Aq X q/p
(c) Both (a) and (b) (b) Ap/Aq X p/q
(d) Neither (a) nor (b) (c) Aq/Ap X q/p
(d) Aq/Ap X p/q
5. Elasticity of Demand is measured in case of —
(a) Changes in Price of the Commodity 12. Usually, the demand for Necessities is —
(b) Changes in Incomes of the (a) Highly Elastic
Consumers (b) Highly Inelastic
(c) Changes in Prices of related (c) Slightly Elastic
commodities (d) Slightly Inelastic
13. Demand for which of the following products
6. Which of the following statements is/are relatively inelastic?
regarding Elasticity of Demand is true? (a ) Water
(a) Elasticity can be positive or (b ) Electricity
negative (c ) Movie Tickets
(b) Elasticity always has a negative value (d ) Both (a) and (b)
(c) Elasticity always has a positive value
(d) Elasticity can never be zero 14. Which of the following products has highly
inelastic demand?
7. Which of the following statements is true with (a) Jewellery
regard to the elasticity of demand? (b) Imported sofa set
(a) The elasticity of demand remains same, (c) Sa l t
both in short run and in long run (d) Sports car
(b) Demand is more elastic in the short run
than in long run 15. Amongst the following which item has highest
(c) Demand is more inelastic in the long run Price Elasticity?
than in short run ( a ) Sal t
(d) Demand is more elastic in the long run ( b ) Petrol
than inshort run ( c ) Indian Oil's Petrol
( d ) Rice
16. In the context of Elasticity of Demand, the 25. Goods which can be put to multiple uses
paradox of plenty relates more to items in the — are —
(a) Services Sector (a) Less Elastic
(b) Agricultural Sector (b) Unit Elastic
(c) Mining Sector (c) More Elastic
(d) Industrial Sector (d) Zero Elastic
17. Goods which have more close or perfect 26. Goods which have a specified and particular
substitutes are use are
(a) Less Elastic (a) Less Elastic
(b) Unit Elastic (b) Unit Elastic
(c) More Elastic (c) More Elastic
(d) Zero Elastic (d) Zero Elastic
18. Goods which have fewer substitutes are — 27. Demand for electricity is elastic because —
(a) Less Elastic (a) It is very expensive.
(b) Unit Elastic (b) It has a number of close substitutes.
(c) More Elastic (c) It has alternative uses.
(d) Zero Elastic (d) None of the above.
19. Goods having higher proportion of the 28. Goods in respect of which the Consumers
Consumers' spending are— have more time to adjust or modify their
(a) Less Elastic consumption pattern are —
(b) Unit Elastic (a) Less Elastic
(c) More Elastic (b) Unit Elastic
(d) Zero Elastic (c) More Elastic
(d) Zero Elastic
20. Goods having lower share in the Consumers'
Budget are — 29. Goods in respect of which the Consumers
(a) Less Elastic do not have time to adjust their consumption
(b) Unit Elastic pattern are —
(c) More Elastic (a) Less Elastic
(d) Zero Elastic (b) Unit Elastic
(c) More Elastic
21. Luxury Goods are considered .......... than (d) Zero Elastic
Necessity
Goods. 30. Goods in respect of which the use or
(a) Less Elastic consumption can be postponed are —
(b) Unit Elastic (a) Less Elastic
(c) More Elastic (b) Unit Elastic
(d) Zero Elastic (c) More Elastic
(d) Zero Elastic
22. Necessary Goods are considered ....... than
Luxury 31. Goods which are required for immediate or
Goods. urgent consumption are —
(a) Less Elastic (a) Less Elastic
(b) Unit Elastic (b) Unit Elastic
(c) More Elastic (c) More Elastic
(d) Zero Elastic (d) Zero Elastic
23. Salt is to price changes than Motor Car. 32. Medicines have less elastic demand since —
(a) Less Elastic (a) They have alternative uses
(b) Unit Elastic (b) They have to be used immediately, and
(c) More Elastic their purchase and use cannot be delayed
(d) Zero Elastic (c) There are fewer substitutes available
24. Cellphone is to price changes than Bread.
(a) Less Elastic 33. Goods which are subject to Consumer
(b) Unit Elastic Habits, e.g. Cigarette, Liquor, etc. are —
(c) More Elastic (a) Less Elastic
(d) Zero Elastic (b) Unit Elastic
(c) More Elastic (a) Percent Change in Quantity demanded
(d) Zero Elastic will be greater than Percent Change in
Price
34. What would be the value of elasticity of (b) Percent Change in Quantity demanded
demand, if the demand for the good is will be lesser than Percent Change in
perfectly inelastic? Price
(a) 0 (c) Percent Change in Quantity demanded
(b) 1 will be equal to Percent Change in Price
(c) Infinity (d) Quantity demanded will not change at
(d) Less than 0 all
35. If the demand for the good is perfectly inelastic, LESS ELASTIC
the Demand Curve will be —
(a) Horizontal Line 43. Identify the factor which generally keeps the
(b) Vertical Line Price—Elasticity of Demand for a product low.
(c) Rectangular Hyperbola (a) Variety of Uses for that product
(d) Downward Sloping to the right (b) Its Low Price
(c) Close Substitutes for that product
36. A demand curve parallel to y-axis implies (d) High proportion of the Consumer's Income
( a ) Ep= 0 spent on it
( b ) Ep= 1
( c ) Ep< 1 44. Identify the coefficient of price—elasticity of
( d ) Ep> 1 demand when the percentage increase in
the quantity demanded of a product is
37. Vertical Demand Curve will show that the smaller than the percentage fall in its price.
price elasticity of demand is — (a) Equal to one
(a) Perfectly inelastic (b) Greater than one
(b) Perfectly elastic (c) Smaller than one
(c) Inelastic (d) Zero
(d) Unitary
38. If the demand for a commodity is ... , entire 45. Price Elasticity of Demand for addictive
products like cigarettes and alcohol would be
burden
—
of indirect tax will fall on the consumer.
(a) Greater than 1
(a) Relatively inelastic
(b) Less than 1
(b) Perfectly inelastic
(c) Infinity
(c) Perfectly elastic
(d) One
(d) Relatively elastic
39. For goods with perfectly inelastic demand — 46. If Electricity Demand is inelastic, and
(a) Ap > Aq electric rates
(b) Ap = Aq increase, which of the following is likely to occur?
(c) Ap = 0 (a) Quantity demanded will fall by a relatively
(d) Aq = 0 large amount
(b) Quantity demanded will fall by a relatively
40. If the demand for the good is perfectly small amount
inelastic, which of the following is correct?
(c) Quantity demanded will rise in the short
(a) Quantity does not change at all run, but fall in the long run
(b) Quantity decreases and price falls (d) Quantity demanded will fall in the short
(c) Quantity increases and price increases run, but rise in the long run
(d) Quantity increases and price falls
47. For goods with less elastic demand —
41. If the demand for the good is perfectly
(a) Aq > Ap
inelastic, and E is the measure of Elasticity,
(b) Aq = Ap
which of the following is true?
(c) Aq < Ap
(a)E= 0
(d) Aq = 1
(b)0 <E<1
(c) E= 1
48. If the demand for the good is less elastic,
(d) E>1
and E is the measure of Elasticity, which of
42. If a product has perfectly inelastic demand, the following is true?
and there is a change in its price, which of (a)E= 0
the following is correct? (b)0 <E<1
(c)E= 1
(d) E>1 56. If the demand for the good is unit elastic,
49. If the demand for the good is less elastic,
(a) Horizontal Line
(b) Vertical Line
(a) Horizontal Line
(c) Rectangular Hyperbola
(b) Vertical Line
(c) Downward Sloping to the right, flatter
(d) Downward Sloping to the right, 57. If the demand for the good is unit elastic,
steeper the Demand Curve will be —
(a) 45 degree Straight Line, sloping
50. If a product has less elastic demand, and downward to the right
there is a change in its price, which of the (b) Rectangular Hyperbola
following is correct? (c) Either (a) or (b)
(a) Percent Change in Quantitydemanded (d) Neither (a) nor (b)
will be greater than Percent Change in
Price 58. Rectangular Hyperbola is also called —
(b) Percent Change in Quantitydemanded
(a) Equilateral Hyperbola
will be lesser than Percent Change in (b) Vertical Line
Price
(c) Square
(c) Percent Change in Quantity demanded
(d) Horizontal Line
will be equal to Percent Change in Price
(d) Quantity demanded will not change at 59. If the demand for the good is unit elastic,
all the Demand Curve will be —
(a) 45 degree Straight Line, sloping
51. When the price of a commodity increases downward to the right
from Rs. 8 to Rs. 9 then the demand
(b) Rectangular Hyperbola
decreases by 10%. The price
(c) Equilateral Hyperbola
Elasticity of d ema nd is (d) Any of the above
(a) 0.8
(b) 0.9 60. If a product has unit elastic demand, and
(c) 1 there is a change in its price, which of the
(d) 1.1 following is correct?
(a) Percent Change in Quantitydemanded
UNIT ELASTIC will be greater than Percent Change in
52. If the demand for a good is unit elastic, the Price
(b) Percent Change in Quantitydemanded
value of the elasticity of demand would be —
(a) 0
will be lesser than Percent Change in
(b) 1
Price
(c) Infinity
(d) Less than 0
will be equal to Percent Change in Price
(d) Quantity demanded will not change at
53. If the price of 'X' rises by 10% and the all
quantity demanded falls by 10%, 'X' has —
(a) Inelastic Demand
61. In case of Straight Line demand curve
(b) Unit Elastic Demand
meeting two axes, the Price Elasticity of
(c) Zero Elastic Demand
demand at a point where the curve meets x-
(d) Elastic Demand
axis would be
(a) 1
54. For goods with unitelastic demand — (b) 0 0
(a) Aq > Ap (c) 0
(b) Aq = Ap (d) >1
(c) Aq < Ap
MORE ELASTIC
(d) Aq = 1
62. Identify the coefficient of price—elasticity of
55. If the demand for the good is unit elastic,
demand when the percentage increase in
and E is the measure of Elasticity, which of
the quantity demanded of a product is more
the following is true?
than the percentage fall in its price.
(a)E= 0
(a) Equal to one
(b)0 <E<1
(b) Greater than one
(c) E= 1
(c) Smaller than one
(d) E>1
(d) Zero (a) 0
(b) 1
63. When quantity demanded changes by (c) Infinity
larger percentage than Price, Elasticity is (d) Less than 0
termed as —
(a) Inelastic 70. If the demand for the good is perfectly
(b) Perfectly elastic elastic, the Demand Curve will be —
(c) Elastic (a) Horizontal Line
(d) Perfectly inelastic (b) Vertical Line
(c) Rectangular Hyperbola
64. Suppose the demand for meals at a medium— (d) Downward Sloping to the right
priced restaurant is elastic. If the
management of the restaurant is 71. Horizontal Demand Curve will show that
considering raising prices, it can expect a the price elasticity of demand is —
relatively — (a) Perfectly inelastic
(a) Large fall in quantity demanded (b) Perfectly elastic
(b) Large fall in demand (c) Inelastic
(c) Small fall in quantity demanded (d) Unitary
(d) Small fall in demand
72. For goods with perfectly elastic demand —
65. For goods with more elastic demand — (a) Ap > Aq
(a) Aq > Ap (b) Ap = Aq
(c) Aq = Ap (c) Ap = 0
(d) Aq < Ap (d) Aq = 0
(e) Aq = 1
73. If the demand for the good is perfectly
66, If the demand for the good is more elastic, elastic, and E is the measure of Elasticity,
and E is the measure of Elasticity, which of which of the following is true?
the following is true? (a)E= 0
(a)E= 0 (b)0 <E<1
(b)0 <E<1
(c)E> 1
(c)E= 1
(d)E> 1 ( d ) E = Infinity
74. What is the mean by price elasticity of

67. If the demand for the good is more elastic, demand greater than 1-
the Demand Curve will be — * (a) % change in quantity demanded is less
(a) Horizontal Line
than % change in price.
(b) Vertical Line
(b) % change in quantity demanded is more
(c) Downward Sloping to the right,
than %change in price,
flatter (c) No change in quantity and price
(d) Downward Sloping to the right,
(d) None of these
steeper
75. Horizontal Demand curve, Parallel to X-axis
68. If a product has less elastic demand, and indicates, that the elasticity of Demand is
there is a change in its price, which of the
following is correct? (a) ) Zero
(a) Percent Change in Quantity demanded
will be greater than Percent Change in (b) ) Infinite
Price (c) ) >1
(b) Percent Change in Quantity demanded (d) ) <1
will be lesser than Percent Change in
Price DETERMINANTS OF PRICE ELASTICITY
76. Price Elasticity of Demand would be higher
will be equal to Percent Change in Price for those products which have —
(d) Quantity demanded will not change at
(a) A larger number of Substitutes
all (b) Fewer Substitutes
(c) No Substitutes
PERFECTLY ELASTIC
(d) Fewer Complementary Goods
69. What would be the value of Elasticity of
Demand, if the demand for the good is
perfectly elastic?
77. Demand for a good will tend to be more 83. If Price of Coffee decreases from ! 5 to !
elastic if it exhibits which of the following 4.50, and as a result the Consumer's
features? Demand for Coffee increase from 60 grams
(a) It represents a small part of the to 75 grams, the absolute Price Elasticity of
consumer's income Demand of Coffee is -
(b) The good has many substitutes (a) 1.5
available (b) 3.0
(c) It is a necessity (as opposed to a (c) 2.0
luxury) (d) 2.5
(d) There is little time for the Consumer to
adjust to the price change 84. If the demand for a product reduces by 2%
as a result of an increase in the price by 10%,
78. If the Elasticity of Demand for a what is the Price Elasticity of Demand for the
commodity is perfectly inelastic, then product?
which of the following is incorrect? (a) +0.20
(a) The Commodity must be essential to (b) - 0 . 40
those who purchaseit. (c) - 0 . 20
(b) The Commodity must have many (d) +0.40
substitutes.
(c) The Commodity will be purchased 85. If the Demand for Cricket Balls increases
regardless of increase in its price. from 50 to 55 because of fall in price from !
(d) The Elasticity of Demand for this 25 to 24, what is the Price Elasticity of
Commodity must beequal to zero. Demand for Cricket Balls?
(a ) ( 1 .0 )
79. Demand for a product will tend to be more (b ) ( 2 .5 )
inelastic if it exhibits which of the following ( c ) (2)
characteristics? ( d ) (5)
(a) The product has many substitutes
(b) The product is a luxury (as opposed 86. What is the Price Elasticity of Demand for a
to a necessity) product, if an increase in the price of the
(c) The product is a small part of the good by 2% leads to fall in demand by 3%?
Consumer's income ( a) +1 .5
(d) There is a great deal of time for the ( b) - 1 . 5
consumer to adjust to the change in (c) ) 1
prices (d) ) 0
80. The Elasticity of Substitution between two 87. Price of Mangoes increases by 22% and the
Perfect Substitutes is — quantity of mangoes demanded falls by 25%.
(a) ) Zero This indicates that demand for mangoes is -
(b) ) Greater than zero (a) Elastic
(c) Less than infinity (b) Inelastic
(d) Infinite (c) Unitarily elastic
(c) ) Perfectly elastic
81. Which is correct about price elasticityof
demand? 88. Suppose the price of movies seen at a
(a) It is several degrees and natures Theatre rises from ! 120 to ! 200 per
(b) It is unaffected due to change in price of person. The Theatre Manager observes
other goods that the rise in price causes attendance at
(c) It is immeasurable concept a given movie to fall from 300 persons to
(d) It is due to direction of change in price 200 persons. What is the Price Elasticity
PROPORTXONATE METHOD of Demand for Movies?
(a) 0.5
82. If the demand for a product reduces by 5% (b) 0.8
as a result of an increase in the price by (c) 1.0
25%. What is the Price Elasticity of Demand? (d) 1.2
(a) -0.2 89. Suppose a Department Store has a sale
(b ) -0.5 on its silverware. If the Price of a plate-
( c ) - 0 . 25
setting is reduced from ! 300 to ! 200 and
(d ) 0.2 the quantity demaAed increases from 3,000
plate settings to 5,000 plate-settings, what is
the Price Elasticity of Demand for that item?
(a) 0.8 96. The price of a tiffin box is Z 100 per unit
(b) 2.0 and the quantity demanded in a market is
(c) 1 . 25 1,25,000 units. Company increased the price
(d) 1.5 to Z 125 per unit due to this increase in price
quantity demanded decreases to 1,00,000
90. A Store has a special offer on CDs. It units. What will be price elasticity of demand
reduces the price from ! 150 to ! 100. The (a) 1.25
Store Manager observes that the quantity (b) 0.80
demanded increases from 700 CDs to 1,400 (c) 1.00
CDs. What is the Price Elasticity of Demand (d) None
for CDs?
(a) 0.8 97. The price of a commodity decreases form 10
(b) 3.0 to 8 and the quantity demanded of it
(c) 1 . 25 increases from 25 to 30 units. Then the
(d) 1 . 50 coefficient of price elasticity will be
(a) 1
91. If a shop raises the price of a product from ! (b) -1
60 to 100 and quantity demanded falls from (c) 1.5
400 units to 300 units, the Price Elasticity (d) -1.5
of Demand is -
(a) 0.667 POINT ELASTICITY
(b) 0.500
98. The Elasticity at a given point on a Demand
(c) 1.000
Curve is known as -
(d) 0.375
(a) Point Elasticity
92. A book seller estimates that if the price of a (b) Income Elasticity
book is increased from ! 60 to ! 67, the (c) Arc Elasticity
quantity of books demanded will decrease (d) Cross Elasticity
from 2,035 to 1,946. The Book's Price 99. Point Elasticity of Demand is calculated as -
Elasticity of Demand is approximately - (a) Upper Segment + Lower Segment
(a) 0.4 (b) Lower Segment ÷ Upper Segment
(b) 0.8 (c) Either (a) or (b)
(c) 1.0 (d) Neither (a) nor (b)
(d) 2.5
100. Point Elasticity is useful for which of the
93. What is the new quantity demanded when following situations -
Price Elasticity is 1 and price changes from (a) The bookstore is considering doubling
! 15 to ! 10 and the original quantity the price of notebooks
demanded was 10 units? (b) A restaurant is considering lowering the
(a) 15 units price of its most expensive dishes by
(b) 20 units 50%
(c) 8 units (c) An automobile producer is
(d) 12 units interested in determining the response
of consumers to the price of cars being
94. What will be the price elasticity if original lowered by Z 50,000
price is Z5, original quantity is 8 units and (d) None of the above
changed price is !6 changed quantity is 4
units?
regarding Elasticity of Demand is true?
(a) 2.5
(a) Elasticity of demand decreases as one
(b) 2.0
goes down a Straight Line Demand
(c) 1.5
Curve
(d) 1.0
(b) Elasticity of Demand increases as one
95. The original price of commodity is 2500 and goes down a Straight Line Demand
quantity demanded is 20 kgs. If price rises Curve
to Z 750 and quantity demanded reduce to (c) Elasticity of Demand is constant
15 kgs, price elasticity o f d e m a n d i s throughout the Straight Line Demand
(a) 0.25 Curve
(b) 0.50 (d) None of the above
(c) 1.00
(d) 1.50 102. If a point on a Demand Curve of any Product
lies on
X Axis, then Price Elasticity of Demand of 109.What is the Price Elasticity of Demand
that commodity at that point will be - when, price changes from Z 10 to Z 12 and
(a) Infinite as a result, demand falls from 6 units to 4
(b) More than zero units?
(c) Less than zero (a) 0.833
(d) Zero (b) 1.6
(c) 2.2
103. If a point on a Demand Curve of any Product (d) 1.833
lies on
Y Axis, then Price Elasticity of Demand of 110.1f the quantity of blankets demanded
that commodity at that point will be - increases from 4,600 to 5,700 in response to
(a) Infinite a decrease in their price from Z 220 to Z
(b) More than zero 190, the Price Elasticity of Demand for
(c) Less than zero Blankets using Arc Method is —
(d) Zero ( a) 0 . 69
( b) 1.0
104.In the case of a Straight Line Demand Curve ( c) 1 . 46
meeting the two axes, the Price-Elasticity of ( d) 2 .66
Demand at the mid-point of the line would 111. What is the Original Price of a Product
be when Price Elasticity is 0.71 and Demand
(a) 0 changes from 20 units to 15 units and the
(b) 1 new price is Z 10? (Use Arc Method for
(c) 1.5 computation)
(d) 2 (a) Z15
(b) Z18
105. If R point bisects the Demand Curve in two (c) Z 20
equal parts, then elasticity at R equals - (d) Z 8
( a ) Ze ro
(b)F i ve TOTAL OUTLAY I REVENUE METHOD
( c ) Two
( d ) One 112. Under Total Outlay Method, if as a result
of the decrease in price of a product, the total
106. Point Elasticity at the mid-point on the expenditure on the product rises, we say
Straight Line Demand Curve is - that Price Elasticity of Demand is —
(a) One (a) Equal to unity
(b) Zero (b) Greater than unity
(c) Less than one (c) Less than unity
(d) Less than zero (d) Zero
107. What is the elasticity between midpoint & 113. Under Total Outlay Method, if Price and
upper extreme point of a straight line Consumer's Total Expenditure on the
continuous demand curve? product move in opposite directions, then,
(a) ) Infinite Price Elasticity of Demand is —
(b) ) Ze ro (a) Equal to unity
(c) ) >1 (b) Greater than unity
(d) ) <1 (c) Less than unity
(d) Zero
ARC ELASTICITY
f the demand for a product is elastic, an
108. At a price of Z 300 per month, there are increase in its price will cause the Total
30,000 subscribers to Cable TV in a Small Expenditure of the Consumers to—
Town. If the Cable Company raises its price (a) Remain the same
to Z 400 per month, the number of (b) Increase
subscribers will fall to 20,000. Using the (c) Decrease
mid-point method for calculating the (d) Any of these
elasticity, what is the Price Elasticity of
Demand for Cable TV? 115. If the demand for a product is elastic, an
(a) 1.4 decrease in its price will cause the Total
(b) 0 . 66 Expenditure of the Consumers to—
(c) 0 . 75 (a) Remain the same
(d) 2.0 (b) Increase
(c) Decrease
(d) Any of these 116. (a) Equal to unity
(b) Greater than unity
116. Under Total Outlay Method, if as a (c) Less than unity
result of the decrease in price of a product, (d) Zero
the total expenditure on the product
decreases, we say that Price Elasticity of 123. When Increase in prices is exactly
Demand is — balanced by a proportionate reduction
(a) Equal to unity in the purchase quantity, then Elasticity
(b) Greater than unity under Total Outlay Method is —
(c) Less than unity (a) ) Equal to unity
(d) Zero (b) ) Greater than unity
(c) Less than unity
117. Under Total Outlay Method, if Price and
(d) ) Z e r o
Consumer's Total Expenditure on the product
move in the same direction, then, Price 124. An increase in price will result in an
Elasticity of Demand is — increase in Total Revenue if —
(a) Equal to unity (a) Percentage Change in quantity
(b) Greater than unity demanded is less than the Percentage
(c) Less than unity Change in Price
(d) Zero (b) Percentage Change in quantity
demanded is more than Percentage
118. If the demand for a product is inelastic, an Change in price
increase in its price will cause the Total (c) Demand is elastic
Expenditure of the Consumers to — (d) Consumer is operating along a Linear
(a) Remain the same Demand Curve at a point at which
(b) Increase the price is very high and the
(c) Decrease quantity demanded is very low
(d) Any of these
f the demand for a product is inelastic, an regarding Elasticity of Demand is true?
decrease in its price will cause the Total (a) If the demand for the product is
Expenditure of the Consumers to — inelastic, an increase in price will
(a) Remain the same have a positive effect on the total
(b) Increase revenue of the Firm
(c) Decrease (b) If the demand for the product is
(d) Any of these elastic, an increase in price will
have a positive effect on the total
120. Total Expenditure of a Consumer increases revenue of the Firm
if — (c) If the demand for the product is
(i) Demand is elastic and price rises inelastic, an increase in price will
(ii) Demand is elastic and price falls have a negative effect on the total
(iii) Demand is inelastic and price rises revenue of the Firm
(iv) Demand is inelastic and price falls (d) If the demand for the product is
inelastic, a decrease in price will
(a) Only (ii) have a positive effect on the total
(b) Only (iii) revenue of the Firm
(c) Both (i) and (iii)
(d) Both (ii) and (iii) decrease in price will result in an
increase in Total Revenue if —
121. Given the following four possibilities, (a) Percentage Change in Quantity
which one results in an increase in Demanded in less than Percentage
Total Consumer Expenditure? Change in Price
(a) Demand is unitary elastic and price (b) Percentage Change in Quantity
falls Demanded is greater than
(b) Demand is elastic and price rises Percentage Change in Price
(c) Demand is inelastic and price falls (c) Demand is inelastic
(d) Demand is inelastic and price rises (d) Consumer is operating along a Linear
Demand Curve at a point at which the
122. Due to change in price of the commodity, the Price is very low and quantity
Total Expenditure remains the same as demanded is very high
before, then Elasticity under Total Outlay
Method is —
127. If a good has price elasticity greater than (a) Price to a change in quantity
one then — demanded
(a) Demand is unit elastic and a (b) Quantity demanded to a Change in
change in price does not affect Price
sellers' revenue. (c) Price to a Change in Income
(b) Demand is elastic and a change in (d) Quantity demanded to a change in
price causes Sellers' Revenue to income
change in the opposite direction.
(c) Demand is inelastic and a change 133. Income Elasticity of Demand is given by
in price causes Sellers' Revenue to —
change in the same direction. (a) ) Ai/ Aq X q/ i
(d) None of the above is correct. (b) ) Ili/ Aq X i/q
(c) Aq/A1 X q/i
128. Ceteris paribus, what would be the
(d) ) L‘q/A1 X i/q
impact on foreign exchange earnings for a
given falling export prices, if the demand 134. Positive Income Elasticity implies that
for the country's exports is inelastic? as income rises, demand for the
(a) Foreign Exchange Earnings commodity —
decrease (a)Ris es
(b) Foreign Exchange Earnings (b)Fa lls
increase ( c ) Remains unchanged
(c) No effect on Foreign Exchange ( d ) Becomes zero
Earnings
Foreign Exchange Earnings increase for 135. If Income—Elasticity is greater than
a brief period and decrease drastically zero, then the product is —
later on ( a) Superior
129. If the Railways are making losses on ( b) Norma l
passenger traffic, they should lower their ( c) Infe rior
fares. The suggested remedy would only ( d) Both (a) & (b)
work if the demand for Rail Travel had a 136 ... have a positive Income Elasticity of
price elasticity of — Demand.
(a) Zero (a) ) Complementary Goods
(b) Greater than zero but less (b) ) Substitute Goods
than one. (c) Normal Goods
(c) One (d) ) Inferior Goods
(d) Greater than one
137. For what type of goods does demand fall with
130. If Cinema Halls are making losses they rise in income levels of households?
should lower the ticket fares. This (a) Inferior Goods
suggestion would only work if the (b) Substitutes
demand for watching movies in cinema (c) Luxuries
halls had a Price Elasticity of — (d) Necessities
(a) Zero
138. Negative Income Elasticity implies that as
(b) Greater than zero but less
income rises, demand for the commodity —
than one.
( a ) Rises
(c) One
(b)Fa lls
(d) Greater than one
( c ) Remains unchanged
131. Price Elasticity of demand for a product ( d ) Becomes zero
is zero. If the Firm increases the price of
139. Generally when income of a consumer
the product by 10%, Total Revenue of
increases he goes for superior goods, leading to
the Firm will —
fall in demand for inferior goods. It means
(a) ) Not change
income elasticity of demand i s
(b) ) Increase to infinity
(a) Less than one
(c) Fall to zero
(b) Negative
(d) ) Decrease by 10%
(c) Ze ro
INCOME ELASTICITY (d) Unitary
132. Income Elasticity of Demand is defined 140. What type of goods does a consumer
as the responsiveness of — eventually stop buying, when his income rises?
(a) Goods with Positive Income Elasticity
(b) Goods with Negative Income Elasticity 149. If Income Elasticity > 1, it means that
(c) Goods with Zero Income Elasticity proportion of Income spent on goods ........ , as
(d) No relationship exists between the type of income of the Consumers increases.
the goods bought and rise in income (a) Increases
(b) Decreases
141. Goods having negative Income Elasticity are (c) Remainsconstant
known as — (d) Nothing can be said
(a) Normal
(b) Inferior 150. For a product to be called income elastic, its
(c) Superior Income Elasticity has to be —
(d) Necessities (a) Below1
(b) Above1
142. In case of Inferior Goods, Income Elasticity is (c) Zero
— (d) Between—1and0
(a) ) Zero
(b) ) 151. Services like Air Travel and Movies have an
Positive ( c) income elasticity of —
Negative ( (a) Morethan1
d) None (b) 0
(c) Lessthan1
143. In Demand—Supply Analysis, if the income (d) Between0 and 1
of the Consumer increases, the Demand
Curve for an inferior good — 152. What would be the value of Income
(a) Shifts upward to the right Elasticity of demand for the meals in a costly
(b) Shifts downward to the left restaurant?
(c) Shifts upward to the left (a) Lesserthanone
(d) Shifts downward to the right (b) Between0 and 1
(c) 1
144have a negative Income Elasticity of Demand. (d) Morethan1
(a) Luxury Goods
(b) Necessities 153. If a good is a Luxury, its Income Elasticity of
(c) Normal Goods demand is
(d) Inferior Goods (a) Positive and less than 1
(b) Negative but greater than —1
145. If quantity demanded does not change as
(c) Positive and greater than 1
Income
(d) Zero
changes, then Income Elasticity of Demand is —
154. Goods having Income Elasticity > 1 are
(a) Below 1
considered as -
(b) Above 1
(a) Luxury Goods
(c) Zero
(b) Necessities
(d) Between—1 and0
(c) Normal Goods
146. Goods having Zero Income Elasticity are — (d) Inferior Goods
(a) Inferior Goods
155. The Income of a Household rises by 20%,
(b) Normal Goods
the demand for Computer rises by 25%,
(c) Luxury Goods
this means Computer (in Economics) is a/an
(a) Inferior Good
147. If an increase in Consumer Incomes leads (b) Luxury Good
to a increase in the demand for Product X, (c) Necessity
then Product X is— (d) Nothing can be said
(a) A Normal Good
156. If Income Elasticity for the household for
(b) A Substitute Good
Product A is 2 then A is -
(c) AnInferior Good
(a) Necessity Item
(b) Inferior Goods
148. For goods increase in income leads to (c) Luxurious Item
increase indemand. (d) Comfortable Item
(a) Abnormal
157. If the Income Elasticity is greater than one,
(b) Normal
(c) Inferior
the commodity is -
(a) Necessity
(d) Superior
(b) Luxury
(c) Inferior goods ( d) - 0 . 05
(d) None of these
166. Suppose a Consumer's income increases
158. If Income Elasticity= 1, it means that from Z 30,000 to Z 36,000. As a result, the
proportion of Income spent on goods , as consumer increases her purchases of
income of the Consumers increases. compact discs (CDs) from 25 CDs to 30 CDs.
(a) Increase What is the Income Elasticity of Demand for
(b) Decreases CDs here?
(c) Remains constant (a) 0.5
(d) Nothing can be said (b) 1.0
(c) 1.5
159. If Consumers always spend 15% of their (d) 2.0
income on food, then the Income Elasticity of
Demand for Foodis 167. If the quantity of CD demanded increases
from 260 to 290 in response to an increase in
( a) 1 .50. income from Z 9,000 to Z 9,800, the Income
( b) 1 .15. Elasticity of Demand is approximately -
( c) 1 . 00 (a) 3.4
( d) 0 .15. (b) 0 .01.
(c) 1.3
160. If Income Elasticity< 1, it means that (d) 2 . 3 .
proportion of Income spent on goods , as
income of the Consumers increases. 168. Concerned about the poor state of the
(a) Increases economy, a Car Dealer estimates that if
(b) Decreases income decreases by 4%, Car Sales will
(c) Remains constant fall from 352 to 335. Consequently, the
(d) Nothing can be said Income Elasticity of Demand for cars is
161. Which of the following is not an income- approximately -
elastic product/service? (a) - 1 .2
(a) Air Travel (b ) 0 . 01
(b) Entertainment in an Amusement (c ) 0.4
Park (d ) 1.2
(c) Life-saving Drugs 169. If an increase in Consumer Incomes leads
(d) Meals in a costly restaurant to a decrease in the demand for Product X,
Necessity is defined as a good having - then Product X is -
(a) Positive Income Elasticity of Demand (a) A Normal Good
(b) Negative Income Elasticity of Demand (b) A Substitute Good
(c) Income Elasticity of Demand less than (c) An Inferior Good
1. (d) None of the above
(d) Price Elasticity of Demand less than 1.
170. Income of a household increases by 10%,
163. Goods having Income Elasticity < 1 are
and the demand for Wheat rises by 5%. This
considered as-
means that Wheat is an example of —
(a) Luxury Goods
(a) Normal Goods
(b) Necessities
(b) Luxurious Goods
(c) Normal Goods
(c) Inferior Goods
(d) Inferior Goods
(d) Economic Goods
164. Which of the following is not a determinant 171. Income of a household increases by 10%,
of the Advertising Elasticity of Demand? and the demand for TV rises by 20%. This
(a) Effect of Time
means that TV is an example of —
(b) Stages of Product
(a) Normal Goods
(c) Advertising by Competitors
(b) Luxurious Goods
(d) Income Level of the Consumers
(c) Inferior Goods
(d) Economic Goods
165. If income increases by 10% and demand
172. Income of a household increases by 5%, and
increases by 5%, then income elasticity of
the demand for Bajra falls by 2%. In this
demand is:
case, Bajra is an example of —
( a) + 0 . 5
(a) Normal Goods
( b) - 0 . 5
(b) Luxurious Goods
( c) + 0.05
(c) Inferior Goods
(d) Economic Goods (d) Greater than 0, but less than 1
CROSS ELASTICITY 181. Goods having negative Cross Elasticity are —

(a) Mostly complementary goods
173. In order to assess the effect of a change in (b) Always complementary goods
price of one product on the demand for (c) Mostly substitute goods
other products, which type of elasticity is (d) Always substitute goods
often used?
(a) Cross Elasticity 182. Negative Cross Elasticity always implies
(b) Income Elasticity that the goods are complementary in nature.
(c) Price Elasticity This statement is —
(d) Supply Elasticity ( a ) True
( b ) False
174. Cross Elasticity measures the ( c ) Partially True
responsiveness of quantity demanded ofa ( d ) Nothing can be said
commodity to —
(a) Changes in Price of that Commodity 183. Goods having zero Cross Elasticity are —
(b) Changes in Price of other Commodities (a) Complementary goods
(c) Changes in Income Levels of Buyers (b) Unrelated goods
(d) All of the above (c) Substitute goods
175. In measuring Cross Elasticity, is / are
considered. 184. Cross Elasticity of Demand between Tea and
(a) Only one product Coffee is
(b) Two products (a) Positive
(c) Many products (b) Negative
(d) No products (c) Zero
(d) Infinity
176. Which of the following statements regarding
Cross Elasticity is true? 185. If the co—efficient of Cross Elasticity of
(a) It is always negative Demand of X for Y is 3, it means that X and Y
(b) It is always positive are —
(c) It can be either positive or negative (a) Complementary Goods
(d) It always lies between 0 and 1
(b) Substitute Goods
(c) Inferior Goods
177. If Goods X and Y are complementary, their
(d) Normal Goods
Cross Elasticity is —
(a) Infinity 186. When Cola Companies Coke and Pepsi,
(b) Greater than zero but less than infinity introduced Colas in mini bottles at a low
(c) Zero price, the demand for Tea and Coffee is small
(d) Negative tea stalls declined drastically. The Cross
Elasticity between the Colas and Tea / Coffee
178. Complementary Goods like tea and sugar is —
have a (a) Negative
Cross Elasticity.
(b) Positive
(a) Negative
(b) Positive ( c ) Zero
(c) Zero ( d ) Infinite
(d) Infinite
187. If two products are good substitutes, the
179. What will be the Slope of Demand Curve value of Cross Elasticity will be —
when it shows the Cross Elasticity (a) )
between two ComplementaryGoods? Negative ( b)
(a) Negative Positive ( c)
(b) Positive Ze ro
(c) Horizontal ( d) No Cross Elasticity exists between two
(d) None of these substitute products
180. Cross Elasticity between Tea and Sugar is — 188. The cross elasticity of demand between two
(a) Less than 0 perfect substitutes will be- *
(b) Greater than 1 (a)Z e r o
(c) Zero (b) I nf i ni ty
( c ) Very high
(d) Very low and demand for Gel Pens falls by 30% is
equal to —
189. Goods having positive Cross Elasticity are ( a ) 0 . 71
— ( b ) + 0.25.
(a) Mostly complementary goods ( c ) 0 . 19 .
(b) Always complementary goods (d)1 . 5 .
(c) Mostly substitute goods
(d) Always substitute goods 197. If the quantity demanded of Product X
increases from 8 to 12 units in response to
190. Positive Cross Elasticity always implies an increase in the price of Product Y from
that the Z 23 to Z 27, the Cross Elasticity of
goods are substitute goods. This statement is — Demand for X with respect to Price of Y is
( a ) Tru e approximately —
( b ) False (a) 0.35 and X and Y are Complements.
( c ) Partially True (b) 0.35 and X and Y are Substitutes.
( d ) Nothing can be said (c) 2.5 and X and Y are Complements.
(d) 2.5 and X and Y are Substitutes.
191. If Cross Elasticity of Demand is Infinity, it
means that the goods are — 198. Which of the following is incorrect?
(a) Perfect Complementary Goods (a) Cross Elasticity of Demand for two
(b) Perfect Substitute Goods substitutes is positive.
(c) Inferior Goods (b) Income Elasticity of Demand is the
(d) Normal Goods percentage change in quantity
demanded of a good due to a change in
192. If Cross Elasticity of Demand --- , Zero, it the price of a substitute.
means that the goods are —
(c) Cross Elasticity of Demand for two
(a) Perfect Complementary Goods complements is negative.
(b) Perfect Substitute Goods
(d) Price Elasticity of Demand is always
(c) Unrelated Goods
negative, except for Giffen Goods.
ALL ELASTICITY COMPUTATION
193. If Cross Elasticity of Demand between A
and B is Zero, it means that between A and Use the following data for the next 8
B— questions.
(a) There can be no substitution at all A Grocery Shop used to sell fresh milk at Z 20
(b) A can be perfectly substituted for B, per litre, at which price 400 litres of milk were
and vice—versa. sold per month. After some time, the price
(c) A and B are Inferior Goods was raised to Z 30 per litre. Following are
(d) Nothing can be said the consequences:
 Only 200 litres of milk was sold every
194. If the quantity demanded of Tea increases month.
by 5% when the price of Coffee increases
 The number of boxes of cereal customers
by 20%, the Cross Elasticity of demand
bought went down from 200 to 140.
between Tea and Coffee is —
(a) —0.25
 The number of packets of powdered milk
(b) 0 . 25
customers bought went up from 90 to 220
(c) 4
per month.
(d) 4
195. The Cross Elasticity of monthly demand 199. The Price Elasticity of Demand when fresh
for ink pen, when the price of gel pen milk's price increases from Z 20 per litre to Z
increases by 25% and demand for ink pen 30 per litre is equal to
increases by 50% is equal to —
( a) + 2.00.
(a) 2.5
( b) —2.00. (b) 1.0
( c) 2 . 09 . (c) 1 . 66
( d) + 2.09. (c) 2 . 66
200. What can be said about the Price
196. Cross Elasticity of Demand for Gel Pen Elasticity of Demand forFresh Milk?
when the Price of Refills increases by 20% (a) It is perfectly elastic.
(b) It is elastic. 222. The responsiveness of a good's demand to
(c) It is perfectly inelastic. changes
(d) It is inelastic. in the Firm's spending on advertising is called
—
201. The Cross Elasticity of Demand for Cereals (a) ) Demand elasticity
when the price of Fresh Milk increases from ! 20 (b) ) Supply elasticity
to Z 30 is equal to (c) ) Advertisement elasticity
(a) -0.6 (d) ) None of the above
(b) +0.6
223. Advertisement Elasticity is the percentage
(c) -0.19.
change in
(d) +0.38.
(a) Supply that occurs for every 1%
202. What can be said about Fresh Milk & change in Advertising Expenditure.
Cereals? (b) Demand that occurs for every 1%
(a) They are Complementary Goods change in Advertising Expenditure.
(b) They are SubstituteGoods (c) Advertisement expense that occurs for
(c) They are Unrelated Goods every 1% change in Demand.
(d) Nothing can be said (d) None of the above
203. The Cross Elasticity of Demand for Powdered 224. Advertising Elasticity is generally
Milk, when the price of Fresh Milk increases (a) Positive (
from Z 20 to Z 30 per litre is equal to - b) Negative (
c)Z e r o
(a) +1.05.
(b) -L05. ( d ) None of the above
(c) -2.89.
225. Which of the following statements is
(d) +2.89 correct?
(a) Higher the value of Advertising
204. What can be said about Fresh Milk and
Elasticity, greater will be the
Powdered Milk?
responsiveness of demand to change in
(a) They are Complementary Goods advertisement.
(b) They are SubstituteGoods
(b) Lower the value of Advertising Elasticity,
(c) They are Unrelated Goods greater will be the responsiveness of
(d) Nothing can be said demand to change in advertisement.
(c) Higher the value of Advertising
205. If Income of the Consumers increases by Elasticity, lesser will be the
50% and the quantity of Fresh Milk responsiveness of demand to change in
demanded increases by 30%. What is Income advertisement.
Elasticity of Demand for Fresh Milk? (d) None of the above
(a) 0.5
(b) 0.6
(c) 1.25
(d) 1.50
206.We can say that Fresh Milk in economics sense

is an example of -
(a) Luxury Goods
(b) Inferior Goods
(c) Normal Goods
(d) Nothing can be said.
221. Advertisement Elasticity is also known as

—
(a) Marketing Elasticity
)
(b) ) Promotional
Elasticity ( c) Commercial
Elasticity ( d) All of the
above
Theory Of Supply
to offer to the market at various prices

Supply Basics- Part A during a period of time.
( a ) P r o d u ce r s
1. Supply can be referred as — ( b ) C o ns um e rs
(a) Those goods which Firms offers (c) Ec o no mi s ts

for sale ( d) Accounta nts
(b) Amount of goods, Firms sells in
7. Supply Quantity is the same as Sales
the market
Quantity. This statement is —
(c) Amount of goods all people want
(a)True
(b) False
2. The Supply of a product refers to — (c) Partially True
(a) Actual production of the product (d) None of the above
(b)Total existing stock of the
product 8. Supply refers to what Firms offer for
(c) Stock available for sale sale, and not necessarily to what they
succeed in selling. This statement is —
(d) Amount of the product offered for
(a)True
sale at a particular price per unit of
time (b) False
( c ) Partially True
3. Supply of a Commodity is a — (d) None of the above
(a) Stock Concept
(b) Flow Concept 9. To constitute Supply, the Producing
Firms must have
(c) Both Stock and Flow Concept.
(a) Ability, i.e. productive capacity
(d) None of these.
(b) Willingness, i.e. ready to supply
4. _____refers to the quantity of goods or (c) Both (a) and (b)
servicesthat Producers are willing and (d) Neither (a) nor (b)
able to offer to themarket at various prices
during a period of time. 10. Supply refers to theby Producing Firms.
(a) Quantities offered for sale
(a) D ema nd
(b) Prices offered
( b) Supply
(c) Sales achieved
(c) Stock
(d) Profits earned
( d) Sales
11. Period in which supply cannot be
5. Supply refers to ________ increased is called
(a) Stock of goods available for sale ( a) Market Period
(b) Stock of goods ( b) Sho r t R u n
(c) Quantity supplied at a various price (c) L o ng R u n
during a period of time ( d) None of these
(d) Actual production of the goods
12. _ is the total volume of the commodity
which
6. Supply refers to the quantity of goods
can be brought into the market for sale
or services, that are willing and able
at a short notice.
Page 4.1
Theory Of Supply
(a) D ema nd 18. Which of the following factors is not a

( b) Supply determinant of Supply?
(c) S t o c k (a) Price of the Commodity
( d) S a l e s (b) Prices of Related Commodities
(c) Prices of Water and Salt
13. ___ refers to the quantity which is
(d) Prices of Factors of Production
actually
brought in the market. 19. Which of the following factors is not a
(a) Demand determinant of Supply?
(b) Supply (a) Government's industrial and
(c) Stock foreign policies
(d) Sa l e s (b) Market Structure
(c) State of Technology
14. Supply is different from Stock. This
(d) Income Levels of Consumers
statement is
(a) True 20. Generally, higher the prices of
(b) False products, higher the
(a) Profits of Producing Firms
( d ) None of the above
(b) Satisfaction Level of Consumers
(c) Ta x R a te s
15. Stock is potential supply.
(a) True
(b) False 21. Producing Firms are guided by —
( c ) Partially True (a) Service Motive
( d ) None of the above (b) Profit Motive
16. Stock refers to quantity _ into the
market,
whereas Supply refers to quantity __
22. Other things being equal, if the
into the
price of the commodity is higher,
market. quantities thereof will be supplied to
(a) Actually brought, actually
the market.
brought (a) Equal
(b) Can be brought, actually brought
(b) Lower
(c) Can be brought, actually brought
( c ) Greater
(d) Can be brought, can be brought
(d) Zero
23. Prices of Related Commodities are not a

17. The meaning of time element in determinant of supply of a particular
economics is commodity. This statement is —
( a) Calendar time
(a)True
( b) C lock ti me
(b) False
(c) Operational time which supply
adjusts with the market demand (d) None of the above
( d) None of these
24. Generally, Supply of a Product X will
be if the
DETERMINANTS OF SUPPLY prices of goods other than X increase.
(a) Equal
(b) Lower
Page 4.2
Theory Of Supply
(c) Greater 30. Other things being equal, if the Cost of

( d) Zero Production of a commodity is lower,
25. Generally, Supply of a Product X will be quantities thereof will be supplied to
___________________________________ if the the market.
prices of goods other than X decrease. (a) Equal
(a) Equal (b) Lower
(b) Lower ( c ) Greater
( c ) Greater (d) Zero
(d) Zero
31. Inventions and Innovations lead to —
26. Supply of a Product decreases when (a) Lower Cost of Production in
the prices of other related goods existing products
increase. This is because (b) Production of more or better
(a) Customers start demanding more of goods
other goods (c) Both (a) and (b)
(b) Those goods become relatively more (d) Neither (a) nor (b)
profitable to the Firm to produce
and sell 32. Other things being equal, if the State
(c) Customers preferences and tastes of Technology i n r e l a ti o n to a
will change c o m m o d i ty i nc r e a s e s , quantities
(d) Producing Firms' profit motive thereof will be supplied to the market.
changes (a) Equal
(b) Lower
27. If there is an increase in the Prices of ( c ) Greater
Factors 3f Production, Cost of (d) Zero
Production of that product will — 33. Inventions and Innovations lead to —
(a) Increase (a) Increase in supply quantity of new
( b) Decrea se products
( c ) Remain Constant (b) Reduction in the supply quantity of
( d ) Become Zero products that are displaced
28. If there is an decrease in the Prices of
(d) N ei the r (a) nor (b)
Factors of Production, Cost of
Production of that product will — 34. Other things being equal, the supply
(a) Increase quantity of a product is related to its
( b) Decrea se price.
( c ) Remain Constant (a) D i rectly
( d ) Become Zero ( b ) I nversely
(c) Proportionally
29. Other things being equal, if the Cost of
(d) Not at all
Production of a commodity is higher,
quantities thereof will be supplied to 35. Other things being equal, the supply
the market. quantity of a
(a) Equal product is related to price of related
(b) Lower goods.
( c ) Greater
(a) D i rectly
(d) Zero
(b) Inversely
( c ) Proportionally
Page 4.3
Theory Of Supply
(d) Not at all 41. Which of the following is the

determinant in the Law of Supply?
36. Other things being equal, the supply
( a ) Te c h no l o g y
quantity of a
(b) Price of related goods
product is _____ related to the Cost of (c) P ric e o f the p rod uc t
Production of (d) N o ne o f the se
that product.
(a) Directly 42. Which of the following is the only
(b) Inversely determinant that the Law of Supply
(c) Proportionally takes into account?
(d) Not at all (a) Te c h no l o g y
(b) P ric e o f the P rod uc t
37. Generally, if there is an increase in
(c) Quality of the Product
Commodity Taxes (Excise Duty,
(d) Purchasing Power of Sellers
Customs Duty, VAT, etc.) leading to
increase in their cost of production, 43. As per Law of Supply, other things
the supply quantity will — being equal, if the Price of a
(a) Increase Commodity increases, its Supply
(b) Decrease Quantity will
( c ) Remain Constan t (a) Increase
( d ) B e c o m e Ze r o (b) Decrease
(c) Remain Constant
38. Generally, if there are incentives like
(d) B e c o m e Ze r o
Subsidies which reduce the cost of
production, the supply quantity will 44. As per Law of Supply, other things
— being equal, if the Price of a
(a) Increase Commodity decreases, its Supply
(b) Decrease Quantity will
( c ) Remain Constan t (a) Increase
( d ) B e c o m e Ze r o (b) Decrease
(c) Remain Constant
39. In case of failure of rains, floods, (d) B e c o m e Ze r o
fires, etc. the supply of agricultural
commodities will — 45. The assumption "Ceteris Paribus" in
(a) Increase the Law of Supply stands for —
( b ) Decrease ( a ) Technology remaining constant
( c ) Remain Constan t ( b ) Demand remaining constant

( d ) B e c o m e Ze r o ( c) Price remaining constant
( d ) All factors other than Price
40. In case of better rainfall, improvement remaining constant
in irrigation, improved seeds, etc. the
supply of agricultural commodities 46. As per Law of Supply, other things
will — being equal, there
(a) Increase
is a ____between Price and Quantity
(b) Decrease
Supplied.
( c ) Remain Constan t (a) D ir ec t r ela ti ons hip
( d ) Become Zero (b) I nv e rse r ela tio ns hip
LAW OF SUPPLY AND SUPPLY CURVE (c) Proportional relationship
Page 4.4
Theory Of Supply
(d) No relationship (a) Vertical

(b) Downward sloping
47. _____ shows the quantity of products a
( c ) Ho r izo nta l
producer or
( d ) Upward sloping
seller wishes to sell at a given price
level. INCREASE / DECREASE IN QUANTITY
( a ) A v era ge P rod u c t C u rv e SUPPLIED
( b ) Su p p l y C u r v e
( c ) Marginal Product Curve 54. Increase or Decrease in the quantity
supplied occurs due to —
(d) To ta l P rod uc t C ur ve
(a) Changes in Price
48. Generally, the Supply Curve — (b) Changes in Factors other than
(a) Slopes downwards from left to Price
right (c) Both (a) and (b)
(b) Slopes upwards from right to (d) Neither (a) nor (b)
left
55. While recognizing Increase or
(c) Slopes upwards from left to
Decrease in the q u a n t i t y s u p p l i e d ,
right w e a s s u m e r e m a i n constant.
(d) N o thi ng ca n be said
(a)Price
49. Generally, the Supply Curve — ( b ) All Factors other than Price
( a ) Positively sloped ( c ) Both (a) and (b)
( b ) Negatively sloped ( d ) Neither (a) nor (b)
( c ) Zero—sloped
56. When there is a movement on the
( d ) N o thi ng ca n be said
Supply Curve, we are referring to —
50. Typically, the Supply Curve —
(a) Change in Supply
(a) Slopes upward
(b) Change in Quantity Supplied
(b) Slopes downward
(c) Is horizontally straight
(d) Is vertically straight
57. Change in Quantity Supplied causes —
51. The Supply Curve —
(a) Is always a straight line (a) a movement on the same Supply
(b) Is always a curve Curve
(c) Sometimes a straight line, (b) shift of the Supply Curve
sometimes a curve (c) Both (a) and (b)

(d) Nothing can be said (d) Neither (a) nor (b)
52. The Market Supply Curve is a lateral 58. When there is a change in quantity
summation (totalling) of Individual supplied —
Supply Curves of all Producing Firms. (a) Supply Curve shifts inward or
This statement is — outward

(a)True (b) There is a upward / downward
(b) False movement on the same Supply

( c ) Partially True Curve
(d) None of the above (c) Both (a) and (b)
53. What would be the shape of the Supply
Curve of the toys, if a Seller offers to sell 59. In case of Increase / Decrease in
any number of toys as 100? quantity supplied, the position of the
Page 4.5
Theory Of Supply
Supply Curve remains the same. This 65. While recognizing Increase or
statement is — Decrease in the Supply, we assume
(a)True ________________remain constant.
(b) False (a) Price
(c) Partially True ( b ) All Factors other than Price
(d) None of the above (c) Both (a) and (b)
( d ) Neither (a) nor (b)
60. Increase in quantity supplied, due to
changes in price, may also be called — 66. When there is a movement of the
(a) Contraction of Supply Supply Curve, we are referring to —
(a) Change in Supply
(b) Expansion of Supply
(b) Change in Quantity Supplied
(c) Decrease in Supply
(d) Increase in Supply
61. Increase in quantity supplied, due to
67. Change in Supply means —
changes in price, may also be called —
(a) A movement on the same Supply
(a) Contraction of Supply
Curve
(b) Expansion of Supply (b) Shift of the Supply Curve
(c) Decrease in Supply (c) Both (a) and (b)
(d) Increase in Supply (d) Neither (a) nor (b)
62. When more units of the product are 68. When there is a change in supply —
supplied at a higher price, it is called — (a) Supply Curve shifts inward or
(a) Contraction of Supply outward
(b) Increase in Supply (b) There is a upward / downward
(c) Change in Supply movement on the same Supply Curve
(d) Expansion of Supply (c) Both (a) and (b)
63. Contraction of Supply is the result of —
(a) Decrease in the number of
69. When higher quantities are supplied,
Producers due to
changes in factors other than price, it is called
(b)Decrease in the price of the product
concerned
(c) Increase in the prices of other
(c) Decrease in Supply
goods
(d) Decrease in the Outlay of Sellers
70. When lower quantities are supplied,
INCREASE / DECREASE IN SUPPLY due to
changes in factors other than price, it is called
64. Increase or Decrease in Supply occurs
due to —
(a) Changes in Price (c) Decrease in Supply
(b) Changes in Factors other than
Price
(c) Both (a) and (b) 71. Which of the following factors will not result
(d) Neither (a) nor (b) in the shifting of Supply Curve for Software
Packages?
Page 4.6
Theory Of Supply
(a) Increase in the wages of computer ommodity

professionals (d) All of these
(b) Government tariffs on software export
and imports Use the following diagram to answer the next 11
(c) Fall in the prices of software packages questions.
(d) All of the above result in the shifting of Y
the curve
72. An Increase in the Supply of a product is

caused by Si
(a) Improvements in Technology
So
(b) Fall in the Prices of other goods
S2
(c) Fall in the Prices of Factors of X
Production
(d) All of these
76. Movement from So to Si is called —
73. An Increase in the Supply of a product is (b) Expansion of Supply
caused by (c) Decrease in Supply
* (a) Reduction in the price of Related (d) Increase in Supply
Commodities
(b) Reduction in Cost of Production of 77. Movement from So to Si is caused by —
this Commodity (a) Changes in Price of the product
(c) Subsidies by Government for (b) Changes in Factors other than price
producing this commodity. (c) Both (a) and (b)
(d) All of these (d) Neither (a) nor (b)
74. An Increase in the Supply of a product is 78. Movement from So to S2 is called —

caused by (a) Contraction of Supply
(a) Inventions and Innovations on this (b) Expansion of Supply
commodity (c) Decrease in Supply
(b) Reduction in Cost of Production of (d) Increase in Supply
this Commodity
79. Movement from So to Si is caused by —
(c) Reduction in the price of Related
(a) Changes in Price of the product
Commodities
(b) Changes in Factors other than price
(d) All of these
75. A Decrease in the Supply of a product is (d) Neither (a) nor (b)
caused by — 80. Reduction in the price of Related
(a) Technology or fashion change, making Commodities will cause a movement from —
the commodity outdated (a) Movement from So to Si
(b) Increase in the price of Related (b) Movement from So to S2
Commodities (c) Movement on S o itself
(c) Increase in Cost of Production of (d) No change at all
t
h 81. Increase in the price of Related
i Commodities will cause a movement from —
s (a) Movement from So to Si
(b) Movement from So to 5 2
C (c) Movement on S o itself
Page 4.7
Theory Of Supply
(d) No change at all 2. Which of the following has the lowest Price
Elasticity of Supply?
82. Reduction in Cost of Production of this
(a) Luxury Items
Commodity will cause a movement from —
(b) Necessities
(a) Movement from So to Si
(b) Movement from So to S2
(c) Perishable Goods
(c) Movement on S o itself (d) Items that have the least budgetary
(d) No change at all allocation
83. Increase in Cost of Production of this
3. In which of the following type of product,
Commodity will cause a movement from —
is the Elasticity of Supply lowest?
(b) Movement from So to S2 (a) Necessities
(c) Movement on S o itself (b) Luxury Goods
(d) No change at all (c) Perishable Goods
(d) Perfect Substitutes
84. Inventions and Innovations on this
commodity will cause a movement from —
4. Given the Market Demand, the burden of
(a) Movement from 50 to S1
specific tax that will be borne by the
(b) Movement from S o to S2
Consumer (Buyer) depends on the —
(c) Movement on S o itself
(a) Price Elasticity of Supply
(d) No change at all
(b) Price Elasticity of Demand
85. Technology or fashion change, making
the commodity outdated, will lead to — (c) Consumer's Ability
(d) Type of the Product
(a) Movement from So to 51
(b) Movement from So to S2
5. Elasticity of Supply is given by the formula
(c) Movement on S o itself
—
(d) No change at all
(a) dp/Aq X q/p
86. If any Subsidies are by Government for (b) Ap/Aq X p/q
producing (c) 4/4 X q/p
this commodity, there will be a movement from —
(d) LS.q/Ap X p/q
(b) Movement from So to S2 6. Elasticity of Supply can be measured using
(c) Movement on S o itself —
(d) No change at all (a) Percentage Change or Proportional
Method
Part B Elasticity of supply (b) Point Elasticity Method
(c) Arc Elasticity Method
1. Elasticity of Supply refers to the (d) All the above
degree of responsiveness of supply of a
good to changes in its 7. Which of the following method is not
used for measuring elasticity of supply?
( a ) Demand
(a) Arc Method
(b) Price
(b) Percentage Method
(c) Cost of Production
(c) Total outlay Method
(d) State of Technology
(d) Point Method
Page 4.8
Theory Of Supply
8. If Quantity Supplied increases by 60% for (a) Proportionate change in price is

a 500/o increase in Price, Elasticity of greater than proportionate change in
Supply is — supply
( a ) —1.2 (b) Proportionate change in supply is
(b) + 1 . 2 greater than proportionate change in
( c ) —0.83 price
( d ) +0.83 (c) Proportionate change in supply is
equal to proportionate change in
9. If Price is 15, quantity supplied is 150
price.
units. IfPrice is 25, quantity supplied is 300
units. Compute Price Elasticity of Supply using (d) All of the above.
Arc Method. 14. If the Elasticity of Supply is Zero, then
(a) —1.09
Supply Curve will be —
(a) Horizontal
(b) + 1 .09
(b) Downward Sloping
(c) —0.98
(c) Upward sloping to the right
(d) +0.98
(d) Vertical
10. When Supply is perfectly inelastic,
15. When Supply is perfectly elastic,
Elasticity of Supply is equal to —
Elasticity of Supply is equal to —
(a) +1
( a ) + 1
(b) 0
( b ) 0
(c) — 1
( c ) —1
(d) I nf ini ty
( d ) I nf i ni ty
11. If as a result of a change in price, the 16. A Horizontal Supply Curve parallel to the
quantity supplied of a product remains quantity axis implies that the Elasticity of
unchanged, we conclude that — Supply is —
(a) Elasticity of Supply is perfectly (a) Zero
inelastic ( b ) I nf ini te
(b) Elasticity of Supply is relatively ( c ) Equal to one
greater elastic ( d ) Greater than zero but less than
(c) Elasticity of Supply is inelastic one.
(d) Elasticity of Supply is relatively less 17. If the Elasticity of Supply is Infinity,
elastic then Supply Curve will be —
( a ) Ho r izo nta l
12. A Vertical Supply Curve parallel to Y axis ( b ) Downward Sloping
implies that the Elasticity of Supply is — ( c ) Upward sloping to the right
(a)Zero (d) V e r t i ca l
(b) I n f i n i ty
18. W he n c ha ng e i n the q ua n ti ty
(c) Equal to One
s uppl ied i s proportionate to the
(d) Greater than Zero but less
change in the price, the product is said
than infinity
to have —
(a) Unitary Elastic Supply
13. Elasticity of Supply is greater than one
(b) Perfectly Elastic Supply
when
(c) Relatively Elastic Supply
(d) Perfectly Inelastic Supply
Page 4.9
Theory Of Supply
19. If the Elasticity of Supply is Infinity, ( a ) 2 . 0

then Supply Curve will be — ( b ) 0.5
( a ) Ho r izo n ta l ( c ) 1.0
( b ) Downward Sloping ( d ) 1.5
( c ) 45 degrees Straight Line
(d) V e r t i ca l
EQUILIBRIUM PRICE WITH DEMAND &
20. If Liq = Change in Quantity Supplied, SUPPLY
Lip = Change in Price, when Supply is 26. Market Forces refer to —
perfectly inelastic, it means (a) Demand
( a ) Liq = Zero
(b) Supply
(b) A q > Ap
( c ) Both (a) and (b)
(c) Aq < Ap
( d ) Neither (a) nor (b)
( d ) Lip = Zero
27. Which of these refer to "Market Forces"?
21. If Liq = Change in Quantity Supplied,
(a) Price and Output
Lip = Change in Price, when Supply is
(b) Demand and Supply
perfectly elastic, it means —
(c) Cost and Revenue
( a ) A q = Ze r o
( b) Aq > L i p
(c) Aq < Ap
28. Demand & Supply interact in
( d ) Lip = Zero
determining—
22. If Liq = Change in Quantity Supplied, (a) Price and Output
Lip = Change in Price, when Supply is (b) Cost and Revenue
relatively elastic, it means — (c) Both (a) and (b)
( a ) Liq = Zero (d) Neither (a) nor (b)
(b) A q > Ap
(c) Aq < Ap
( d ) Lip = Zero 29. Equilibrium price is where
(a) Market supply and market demand
Lip = Change in Price, when Supply is are equal
relatively inelastic, it means (b) Firm supply ad market demand
( a ) Liq = Zero are equal

(c) Firm demand and market supply
( b ) Li q> Lip
( c ) Li q< Lip
are equal
( d ) Lip = Zero (d) None of these
30. Generally, the Demand Curve —

(a) Is parallel to X Axis
Lip = Change in Price, when Supply is
(b) Is parallel to Y Axis
relatively elastic, it means —
(c) Slopes upward from left to right
( a ) Liq = Zero
(d) Slopes downward from left to
(b) A q = Ap
right
(c) Aq < Ap
( d ) Lip = Zero
25. Price is fallen by 20% brings above 31. Generally, the Demand Curve —
10% fall in quantity supplied then (a) Is positively sloped.
elasticity of supply is ________________ (b) Is negatively sloped.
4.16
Page 4.10
Theory Of Supply
(c) Has both positive and negative 37. Other things being equal, as Demand
slopes increases, Quantity at the Equilibrium
(d) Does not have a slope at all Price level —
(a) increases
32. Generally, the Supply Curve —
( b ) decreases
(c) does not change at all
( d ) cannot be commented upon.
(c) Slopes upward from left to right
(d) Slopes downward from left to
38. Other things being equal, as Demand
right increases
33. Generally, the Supply Curve — (a) Equilibrium Price and Quantity both
(a) Is negatively sloped. increase.
(b) Is positively sloped. (b) Equilibrium Price and Quantity both
(c) Has both positive and negative decrease.

slopes (c) Equilibrium Price increases and
(d) Does not have a slope at all Quantity decreases.
34. In the table below, what will be (d) Equilibrium Price decreases and
Equilibrium Price? Quantity increases.
Price(in Demand Supply 39. Other things being equal, as Demand

1Z) 1000
Qty 400
Qty decreases, Equilibrium Price —
2 900 500 ( a ) decreases
3 800 600 ( b ) increases
4 700 700 ( c ) does not change at all
5 600 800
( d ) cannot be commented upon
6 500 900
7 400 1000 40. Other things being equal, as Demand
8 300 1100
decreases, Quantity at the Equilibrium
Price level —
(a) Z2
(a) increases
(b) Z3
(b) decreases
(c) Z4
(c ) does not change at all
(d) 75
(d) cannot be commented upon.
35. P Q.D. Q.S. 1 500 200 2 450 250 3 400
41. Other things being equal, as Demand
300 4 350 350 5 300 400 6 250 450 7 200
decreases —
550 8 150 600 Whatis equilibrium price
(a) Equilibrium Price and Quantity bOth
(a) 1
increase.
(b) 2
(b) Equilibrium Price and Quantity both
(c) 3
decrease.
(d) 4
(c) Equilibrium Price increases and
36. Other things being equal, as Demand Quantity decreases.

increases, Equilibrium Price — (d) Equilibrium Price decreases and
(a) decreases Quantity increases.

(b) increases 42. With a given Supply Curve, a decrease in
(c ) does not change at all Demand causes —
(d) cannot be commented upon.
Page 4.11
Theory Of Supply
(a) An overall decrease in price but an (c ) Does not change at all

increase in equilibrium quantity (d) Cannot be commented upon.
(b) An overall increase in price but a
decrease in equilibrium quantity 48. Other things being equal, as Supply
decreases Equilibrium Price and Quantity
(c) An overall decrease in price and a
both increase.
decrease in equilibrium quantity
(d) No change in overall price but a (a) Equilibrium Price and Quantity both
reduction in equilibrium quantity decrease.
(b) Equilibrium Price increases and
43. Other things being equal, as Supply Quantity decreases.
increases, Equilibrium Price — (c) Equilibrium Price decreases and
(a) Decreases Quantity increases.
(b) Increases (d) None of the above
(c ) Does not change at all
49. If increase in demand is greater than the
(d) Cannot be commented upon.
increase in supply, then the Equilibrium
44. Other things being equal, as Supply Price —
increases, Quantity at the Equilibrium (a) Decreases
Price level — (b) Increases

(a) Increases (c ) Does not change at all
( b ) Decreases (d) Cannot be commented upon.
(c) Does not change at all
50. If increase in demand is greater than the
increase in supply, then Quantity at the
45. Other things being equal, as Supply Equilibrium Price level —
( a ) Increases
increases —
( b ) Decreases
(a) Equilibrium Price and Quantity both
(c) Does not change at all
increase.
(b) Equilibrium Price and Quantity both
decrease. 51. If increase in demand is greater than the
(c) Equilibrium Price increases and increase in supply, then —
Quantity decreases. (a) Equilibrium Price and Quantity
(d) Equilibrium Price decreases and both increase.
Quantity increases. (b) Equilibrium Price and Quantity
both decrease.
46. Other things being equal, as Supply (c) Equilibrium Price increases and
decreases, Equilibrium Price — Quantity decreases.
(a) Decreases (d) Equilibrium Price decreases and
(b) Increases Quantity increases.
(c ) Does not change at all
52. If decrease in demand is greater than
the decrease in supply, then the
47. Other things being equal, as Supply Equilibrium Price —
decreases, Quantity at the Equilibrium ( a ) D e c r e a s es
Price level — ( b ) I nc r e a s e s
( c ) Does not change at all
(a) Decreases
( d ) Cannot be commented upon.
(b) Increases
Page 4.12
Theory Of Supply
53. If decrease in demand is greater than ( a) D e c r e a s es

decrease in supply, then the Quantity ( b) I nc r e a s e s
at the Equilibrium Price level — ( c ) Does not change at all
( a ) I nc r e a s e s ( d ) Cannot be commented upon.
( b ) D e c r e a s es
( c ) Does not change at all 59. If decrease in demand is equal to the
( d ) Cannot be commented upon. decrease in supply, then the Quantity
at the Equilibrium Price level —
54. If decrease in demand is greater than ( a) i nc r e a s e s
the decrease in supply, then — ( b) d e c r e as e s
(a) Equilibrium Price and Quantity ( c ) does not change at all
both increase. ( d ) cannot be commented upon.
(b) Equilibrium Price and Quantity
both decrease. 60. If decrease in demand is equal to the
(c) Equilibrium Price increases and decrease in supply, then —
Quantity decreases. (a) Equilibrium Price and Quantity
(d) Equilibrium Price decreases and both increase.
Quantity increases. (b) Equilibrium Price and Quantity
both decrease.
55. If increase in demand is equal to the (c) Equilibrium Price remains the same
increase in supply, then the Equilibrium but Quantity increases.
Price — (d) Equilibrium Price remains the same
( a ) D e c r e a s es
but Quantity increases.
( b ) I nc r e a s e s
( c ) Does not change at all 61. If increase in demand is less than the
( d ) Cannot be commented upon. increase in supply, then the
Equilibrium Price —
56. If increase in demand is equal to the ( a ) D e c r e a s es
increase in supply, then the Quantity ( b) I nc r e a s e s
at the Equilibrium Price level — ( c ) Does not change at all
( a ) I nc r e a s e s ( d ) Cannot be commented upon.
( b ) D e c r e a s es
( c ) Does not change at all 62. If increase in demand is less than the
( d ) Cannot be commented upon. increase in supply, then the Quantity
at the Equilibrium Price level —
57. If increase in demand is equal to the ( a ) I nc r e a s e s
increase in supply, then — ( b ) D e c r e a s es
(a) Equilibrium Price and Quantity ( c ) Does not change at all
both increase. ( d ) Cannot be commented upon.
both decrease. 63. If increase in demand is less than the
(c) Equilibrium Price remains the same increase in supply, then —
but Quantity increases. (a) Equilibrium Price and Quantity
(d) Equilibrium Price remains the same both increase.

but Quantity increases. (b) Equilibrium Price and Quantity
58. If decrease in demand is equal to the both decrease.

decrease in supply, then the (c) Equilibrium Price increases and
Equilibrium Price — Quantity decreases.
Page 4.13
Theory Of Supply
(d) Equilibrium Price decreases and (b) I nc r eas e i n bo th Pr ice a nd

Quantity increases. Q ua nti ty a t equilibrium
(c) Increase in Equilibrium Quantity,
64. If decrease in demand is less than the
Equilibrium Price remaining
decrease in supply, then the Equilibrium
constant
Price —
( a ) d e c r e as e s
(d) Increase in Equilibrium Price,
( b ) i nc r e a s e s
Equilibrium Quantity remaining
( c ) does not change at all
constant
( d ) cannot be commented upon.
69. If the Supply of a commodity is
65. If decrease in demand is less than the perfectly elastic, a decrease in Demand
decrease in supply, then the Quantity will result in —
at the Equilibrium Price level — ( a ) Decreas e in bo th Price and
( a ) I nc r e a s e s Quanti ty a t equilibrium
( b ) D e c r e a s es (b) I nc r eas e i n bo th Pr ice a nd
( c ) Does not change at all Q ua nti ty a t equilibrium
( d ) Cannot be commented upon. (c) Decrease in Equilibrium Quantity,
66. If decrease in demand is less than the Equilibrium Price remaining
decrease in supply, then — constant
(a) Equilibrium Price and Quantity
(d) Decrease in Equilibrium Price,
both increase. Equilibrium Quantity remaining
constant
both decrease.
(c) Equilibrium Price increases and 70. If the Supply of a commodity is
Quantity decreases. perfectly inelastic, an increase in
(d) Equilibrium Price decreases and Demand will result in —
Quantity increases. ( a ) Decreas e in bo th Price and
Quanti ty a t equilibrium
67. Which of the following situation does
(b) I nc r eas e i n bo th Pr ice a nd
not lead to an increase in Equilibrium Q ua nti ty a t equilibrium
Price?
(c) Increase in Equilibrium Quantity,
(a) An increase in demand, without a
change in supply.
constant
(b) A decrease in supply
(d) Increase in Equilibrium Price,
accompanied by an increase in
demand.
constant
(c) A decrease in supply without a
change in demand. 71. If the Supply of a commodity is
(d) An increase in supply perfectly inelastic, a decrease in
accompanied by a decrease in Demand will result in —
demand. ( a ) Decreas e in bo th Pr ice and
68. If the Supply of a commodity is
(b) I nc r eas e i n bo th Pr ice a nd
perfectly elastic, an increase in
Q ua nti ty a t equilibrium
Demand will result in —
(c) Decrease in Equilibrium Quantity,
(a) Decreas e in bo th Price and
constant
Page 4.14
Theory Of Supply
( d ) Decrease in Equilibrium Price, ( c ) Decrease in Equilibrium Quantity,

Equilibrium Quantity remaining Equilibrium Price remaining constant
constant ( d ) Decrease in Equilibrium Price,
72. If the Demand of a commodity is perfectly Equilibrium Quantity remaining
elastic, an increase in Supply will result in constant
—
( a ) D e cre ase i n bo th P ri ce an d 76. If a fisherman must sell all of his daily
Q u an ti ty at equilibrium catch before it spoils for whatever price he
( b ) I n c re ase i n bo th P ri ce an d is offered once the fish are caught. The
Q u an ti ty a t equilibrium Fisherman's Price Elasticity of Supply for
( c ) Increase in Equilibrium Quantity,
fresh fish is —
Equilibrium Price remaining constant (a) Zero
( d ) Increase in Equilibrium Price, ( b ) Infinity
Equilibrium Quantity remaining ( c ) One
constant ( d ) C an n o t be de te r mi n e d
73. If the Demand of a commodity is perfectly The Below 7 Questions are based on the
elastic, a decrease in Supply will result in demand and supply diagrams below. S1 and D1
— are the original demand and supply curves.
( a ) D e cre ase i n bo th P ri ce an d D2, D3, S2 and S3 are possible new demand
Q u an ti ty at equilibrium and supply curves. Starting from initial
( b ) I n c re ase i n bo th P ri ce an d equilibrium point (1) what point on the graph
Q u an ti ty a t equilibrium is most likely to result from each change?
( c ) Decrease in Equilibrium Quantity,
Equilibrium Price remaining constant
( d ) Decrease in Equilibrium Price,
constant
74. If the Demand of a commodity is perfectly

inelastic, an increase in Supply will result
in —
( a ) D e cre ase i n bo th P ri ce an d
Q u an ti ty at equilibrium
( b ) I n c re ase i n bo th P ri ce an d
77. Assume X is a normal good. Holding
Q u an ti ty a t equilibrium
everything else constant, assume that
( c ) Increase in Equilibrium Quantity,
income rises and the price of a factor of
Equilibrium Price remaining constant production also increases. What point in
( d ) Increase in Equilibrium Price, Figure 1 is most likely to be the new
Equilibrium Quantity remaining equilibrium price and quantity?
constant (a) Point 9
(b) Point 5
75. If the Demand of a commodity is (c) Point 3
perfectly inelastic, a decrease in Supply ( d) Point 2.
will result in —
( a ) D e cre ase i n bo th P ri ce an d
78. We are analyzing the market for good Z.
Q u an ti ty at equilibrium The price of a complement good, good Y,
declines. At the same time, there is a
( b ) I n c re ase i n bo th P ri ce an d
technological advance in the production
Q u an ti ty a t equilibrium
of good Z. What point Figure 1 is most
Page 4.15
Theory Of Supply
likely to be the new equilibrium price and (a) When supply increases and demand
quantity? decreases.
(a) Point 4. (b) When demand increases and supply
(b) Po int 5 decreases
(c) Point 8 (c) When supply increases and demand
(d) Po int 7 increases.
(d) When demand decreases and supply
79. Heavy rains in Maharashatra during 2005 decreases.
and 2006 caused havoc with the rice crop.
What point in Figure 1 is most likely to be 82. When a market is in equilibrium:
the new equilibrium price and quantity? ( a) No sho rtages exist.
(a) Point 6 ( b) Quantity demanded equals quantity
( b ) Po i n t 3 supplied.
( c ) Po i n t 7 (c) A price is established that clears the
( d ) Po i n t 8 market.
( d) All of the above are correct.
80. Assume that consumers expect the prices 83. The market of computers is not in
on new cars to significantly increase next equilibrium, then which of the following
year. What point in Figure is most likely to statements is definitely true?
be the new equilibrium price and quantity? (a) The prices of computer will rise
(a) Point 6 (b) The prices of computer will fall
(b) Point 5 (c) The prices of computers will change,
(c) Point 3 but not enough information is given to
(d) Point 8 determine the direction of the change.
(d) None o f the above.
81. What combinations of changes would most
likely decrease the equilibrium quantity?
Page 4.16
Theory Of Supply
Page 4.17
Production concept MCQ
Changing the from of natural
Part A- PRODUCTION
(a)
resources
(b) Changing the place of the
BASICS
resources
(c) Both of the above
1. In Economics, ....... refers to any
8. Production = Creation of Utility. This
economic
statement is
activity, which is directed towards
(a)True
satisfaction of human wants.
(b) False
( a ) Pro du cti on
( b ) Distribution
( c ) Consumption (d) None of the above
( d ) E c o no m i c s
9. Production = Satisfaction of Utility. This
2. In Economics, Production refers to any statement is
economic activity —
(a)True
( a ) Which results in a tangible
(b) False
product or commodity
(c) Partially True
( b) Which is directed at the satisfaction of
human wants.
( c ) Both (a) and (b) 10. Production refers to —
( d) Neither (a) nor (b) (a) Creation of value
( b) Addition of value
3. Which of the following statement is True?
Production can be defined as—
( d) Neither (a) nor (b)
(a) Creation or addition of utility
(b) Conversion of raw material into 11. Production refers to —
finished goods (a) Tangible goods and products
(c) An activity of making something
(b) Intangible services
immaterial (c) Both (a) and (b)
(d) All of these
4. In Economics, Production refers — 12. Production is defined as

( a) Creation of utility
( a) Creation of matter
( b) Satisfaction of utility
( b) Creation of utility in matter
(c ) Both (a) and (b)
(c ) Creation of infrastructural facilities
( d) None of these
5. Production may be defined as an act of— 13. Which of the following statements
( a ) Creating utility.
regarding Service Industry is true?
( b) Earning profit.
(a) Service Industry uses less Capital
( c ) Destroying utility.
Equipment
( d) Providing services.
(b) Service Industry uses more Capital
(c) Service Industry uses no Capital
6. Production is a / an activity.
Equipment
( a ) Chari tabl e
(d) Service Industry uses less Variable
( b ) Be ne fi ci al
Factors
( c ) E c o no m i c
( d ) Su cce ssfu l
14. Production refers to —
7. Production does not consist of which of the ( a) Capital Goods only
following activities? ( b) Consumer Goods only

5.1
( d) Neither (a) nor (b) (b) Sale of Crackers during Festival
Season
15. Production includes — (c) Distributing Water Packets in a
(a) Mining temple festival
( b ) Manufacturing (d) All of the above
( c ) Service providing
( d ) All of above 22. In Economics, Production Activity should
involve —
16. Which of the following is considered (a) Creation of new matter
Production in Economics? (b) Addition of value to existing matter
(a) Tilling of soil (c) Both (a) and (b)
(b) Singing a song before friends (d) Neither (a) nor (b)
(c) Preventing a child from falling into
manhole on the road 23. Production Activity involves creation of
(d) Painting a picture for pleasure Utility. Such Utility can be created as —
( a ) Form Utility
17. Which of the following statements is ( b) Place Utility
true? ( c ) Time Utility
(a) Services of a Doctor are considered ( d) All of the above
Production
(b) Man can create matter 24. Production Activity involves creation of
(c) Services of a Housewife are Utility. Such Utility can be created as —
considered Production (a) Personal Utility
(d) When a man creates a table, he (b) Form Utility
creates matter (c) Ti me Utility
18. Production of Cellphones by a
Manufacturing Company is an example 25. In Production Activity, one of the ways
of Production Activity. This statement is — of creating Utility is —
(a)True ( a ) Form Utility
(b) False ( b) Marginal Utility
( c ) Partially True ( c ) Total Utility
(d) None of the above ( d) All of the above
19. Hawking of Fruits and Vegetables by a 26. Which of these is not a method of creating
Street Vendor is an example of Utility in Production?
Production Activity. This statement is — ( a ) Form Utility
(a)True ( b) Marginal Utility
(b) False ( c ) Place Utility
( c ) Partially True ( d) Personal Utility
(d) None of the above 27. Utility refers to physically changing the
form of
20. Work of a Professional (like Chartered
Accountant) does not result in any natural resources.
tangible output. Hence, it is not a ( a ) Form Utility
Production Activity in Economics. ( b) Place Utility
This statement is — ( c ) Ti me Utility
(a)True ( d) Personal Utility
(b) False
28. Utility refers to changing the place of
the
resources, from place of lesser use to
21. Which of these is a Production Activity? place of greater use.
(a) Sale of Apples and Mangoes ( a ) Form Utility
( b) Place Utility
5.2
(c) Time Utility (a) Form Utility
( d) Personal Utility ( b) Place Utility
( c ) Ti me Utility
29. Utility is created by making goods and ( d) Personal Utility
services
available at times when they are not 36. If G arments from Ti rupur are
normally available. available fo r Sale in a Store in USA, it
( a ) Form Utility refers to creation of —
( b) Place Utility ( e) Form Utility
( c ) Time Utility ( f ) Place Utility
( d) Personal Utility ( g) Ti me Utility
( h ) Personal Utility
30. Utility involves making use of personal
skills in 37. Moving or distri buting goods from
the form of services. places of production (Origin
( a) Form Utility Centres) to Markets (destination
( b) Place Utility centres) refers to creation of —
( a ) Form Utility
(c ) Ti me Utility
( b) Place Utility
( d) Personal Utility
( c ) Time Utility
31. Making Furniture from raw Wood is an ( d) Personal Utility
example of creation of —
38. Extraction from coal, minerals, gold,
( a) Form Utility
etc. from Earth, refers to creation of —
( b) Place Utility
( a ) Form Utility
(c ) Ti me Utility
( b) Place Utility
( c ) Time Utility
32. When Bangles and Ear—Rings are made ( d) Personal Utility
from Gold, we refer to creation of —

39. Place Utility involves Changing the
( a) Form Utility
place of the resources, from the place
( b) Place Utility
where they are of ...............................
(c ) Time Utility
use, to another place where they are of
................................................... .use.
(a) Lesser, greater
33. Raw Material converted into Finished
(b) Greater, lesser
Product in the manufacturing process,
(c) Specific, general
refers to creation of
(d) General, specific
( a ) Form Utility
( b) Place Utility
40. Storing harvested foodgrains for use till
( c ) Ti me Utility
next harvest is an example of creation of
—
34. If Apples from Kashmir are available ( a ) Form Utility
for Sale in Chennai, it refers to creation of ( b) Place Utility
— ( c ) Ti me Utility
( a ) Form Utility ( d) Personal Utility
( b) Place Utility
41. Work of Professionals like Doctors,
( c ) Ti me Utility
Chartered Accountants, etc. can be
considered under —
( a ) Form Utility
35. If Oranges from Nagpu r are made
( b) Place Utility
available fo r S ale in a Department
( c ) Ti me Utility
Store in Kolkata, it refers to creation
of —
5.3
42. To complete production, all four types of 49. The Incentive / Reward in respect of Land
utilities, i.e. Form, Place, Time and is called —
Personal Utility, should be created. This (a) Rent
statement is — ( b) Wages
(a)True ( c ) Interest
(b) False (d) Profit
(d) None of the above 50. The Incentive / Reward in respect of
Labour is called
(a) Rent
43. Productive Resources required to ( b) Wages
produce goods and / or services are called ( c ) Interest
— (d) Profit
(a) Resources of Production
51. The Incentive / Reward in respect of
(b) Concepts of Production
Capital is called
(c) Factors of Production
(a)Rent
(d) Ideas of Production
(b) Wages
44. Factors of Production are — ( c ) Interest
( a ) Natural Resources (d) Profit

( b) Man Made Resources
( c ) Both (a) and (b) 52. The Incentive / Reward in respect of
( d) Neither (a) nor (b) Entrepreneurial Ability is called —
(a) Rent
45. Land is a Factor of Production. (b) Wages
(a) Natural ( c ) Interest
( b ) M a n M a de (d) Profit
( d ) Neither (a) nor (b) LAND
46. Which of these is not a basic Factor of 53. Land refers to —

Production in Economics? (a) All free gifts of nature.
(a)Land (b) All man—made resources
( b ) Ente rpri se (c) Both (a) and (b)
( c ) Capital (d) Neither (a) nor (b)
( d) Money
54. Land refers to —
47. Which of the following is a factor(s) of (a) Soil and earth's surface
production? (b) Fertility of soil
(a) Labour (c) Natural resources
(b) Capital (d) All of the above
( c ) Entrepreneurship
( d ) All of these 55. Gold Mines is an example of , as a Factor of
Production.
48. The demand for a Factor of Production (a) Land
is said to be a Derived Demand because— ( b ) Labour
(a) It is a function of the profitability ( c ) Capital
of an enterprise ( d ) Entrepreneurial Skills
(b) It depends on the supply of
complementary factors 56. Reserves of Crude Oil is an example of , as a
(c) Its stems from the demand for the Factor of Production.
final product (a) Land
(d) It arises out of means being scarce in ( b ) Labour
relation to wants. ( c ) Capital
5.4
(d) Entrepreneurial Skills (d) Perfectly inelastic
57. Which of these is an example of Land as a 65. As a Factor of Production, the Supply of
Factor of Production? Land is perfectly inelastic from the viewpoint of
(a) Agricultural Lands —
(b) Forests (a) The entire economy
(c) Diamond Mines (b) An Individual Firm
(d) All of the above (c) Both (a) and (b)
58. Which of these is included in "Land" as a
Factor of Production? 66. As a Factor of Production, the Elasticity of
(a) Fertility of Soil Supply of Land from the viewpoint of the entire
(b) W a t e r economy is —
(c) Air ( a ) Infinite
(d) All of the above ( b) Z e r o
( c ) Positive
59. Anything available above the earth's surface is ( d) Negative
called "Land". This statement is —
(a) True 67. As a Factor of Production, the Supply of
(b) False Land is f r o m t h e v i e w p o i n t o f t h e
( c ) Partially True e n t i r e economy.
( d ) None of the above (a) Perfectly elastic
(b) Relatively elastic
60. As a Factor of Production, Land is —
(c) Relatively inelastic
(a) A free gift of nature.
(d) Perfectly inelastic
(b) Fixed in quantity
(c) Variable in terms of fertility and uses 68. As a Factor of Production, the Supply of
(d) All of above are correct. Land is relatively elastic from the viewpoint of
—
61. As a Factor of Production, Land is — (a) The entire economy
(a) Permanent (b) An Individual Firm
(b) Original and indestructible (c) Both (a) and (b)
(c) Free gift of nature (d) Neither (a) nor (b)
(d) All of above are correct.
69. As a Factor of Production, Land is permanent.
62. As a Factor of Production, Land is — This means that Land —
(a) Fixed in quantity (a) Remains before and after cultivation
(b) Variable in quantity (b) Cannot be destroyed or lost
(c) Not quantifiable at all (c) Cannot be used for production at all
(d) Not useful for production. (d) None of the above
70. As a Factor of Production, Land has certain
63. As a Factor of Production, "Land" is a
inherent properties, e.g. Fertility. These
................................................................
properties are —
means of Production. (a) Indestructible
(a) Original (b) Original
(b) Produced (c) Both (a) and (b)
(c) Derived (d) Neither (a) nor (b)
(d) Monetary
71. If Land is used for productive purposes, its
64. As a Factor of Production, the Supply of fertility is reduced. Such fertility —
Land is f r o m t h e v i e w p o i n t o f t h e (a) Can be restored
e n t i r e economy. (b) Cannot be restored at all
(a) Perfectly elastic (c) Is lost forever
(b) More elastic (d) Both (b) and (c)
(c) Less elastic
5.5
72. As a Factor of Production, Land lacks 79. ........refers to mental or physical exertion
mobility. Lack of mobility means — directed to produce goods or services, and
(a) Land cannot be used for anything with a view to gain an economic reward.
other production of Rice. (a) Land
(b) Land cannot be shifted from one place ( b ) Enterprise
to another place ( c ) Capital
(c) Both (a) and (b) ( d ) Labour
80. Activities done out of pleasure, love and
73. As a Factor of Production, Land lacks affection, pastime, hobbies, etc. may be
mobility in the very useful in increasing human well—being,
................. sense. and hence constitute Labour. This statement is
(a) Geographical —
(b) Uti l i ty (a) True
(c) Both (a) and (b) (b) False
(d) Neither (a) nor (b) ( c ) Partially True
74. As a Factor of Production, Land is mobile
across 81. To have an economic significance, Labour
( a ) P l a ce s must be done with —
(b) Uses (a) The motive of some economic reward
( c ) Both (a) and (b) (b) The motive of pleasure and satisfaction
( d ) Neither (a) nor (b) (c) Both (a) and (b)
75. No two pieces of land are exactly alike in
all respects. This statement is — 82. Which of these constitute "Labour"?
(a) True
(a) Singing in the company of friends for the
(b) False
sake of pleasure.
(b) Singing against payment of a fee.
(c) Singing while walking on the road
76. Land is a specific factor of production. Why? (d) None of the above
(a) It cannot be used at all
83. Which of these constitute "Labour"?
(b) It does not yield any result unless human
(a) Singing in the company of friends for the
efforts are employed.
sake of pleasure.
(c) It is fixed and permanent
(b) Singing against payment of a fee.
(d) It is a free gift of nature.
(c) Singing while walking on the road
77. Which of the following is not a (d) None of the above
characteristic of Land?
(a) Its supply for the economy is limited 84. Services of a Maid Servant constitutes Labour,
(b) It is immobile while Services of a Housewife does not. This
(c) Its usefulness depends on human statement is
efforts (a) True
(d) It is produced by our forefathers (b) False
78. Which one of the following is not a
characteristic of land
(a) A Free gift of nature 85. As a Factor of Production, "Labour" is a
(b) Its supply is fixed ....................................................................
(c) An active factor of production means of Production.
(d) It has Different Uses (a) Original
(b) Produced
LABOUR (c) Derived
(d) Monetary
5.6
86. Which of these constitute a feature of "Labour", 93. As a Factor of Production, a day's
as a Factor of Production? "Labour" lost cannot be —
(a) Human Efforts (a) Measured at all
(b) Perishable Nature (b) Recovered at all
(c) Weak bargaining power (c) Completely recovered
(d) All of the above (d) None of the above
87. "Labour", as a Factor of Production 94. A Labourer cannot store his Labour, for
involves — use at a later time. This statement is —
(a) Economic Considerations only (a)True
(b) Human and Psychological (b) False

Considerations ( c ) Partially True
(c) Both (a) and (b) (d) None of the above

(d) Neither (a) nor (b) 95. As a Factor of Production, "Labour" is
perishable. The consequence of this is —
88. "Labour", as a Factor of Production
(a) There is no Reserve Price for
involves —
Labour.
( a) Free Gift of Nature
(b) The Labourer has to accept the wage
( b) Human Efforts
offered to him.
(c) The Labour has weak bargaining
power.
89. "Labour", as a Factor of Production (d) All of the above
involves human efforts, with a view to gain
96. Since there is no Reserve Price, Labour
—
has —
( a) Pleasure only
( b) Mental satisfaction (a) Weak bargaining power
(c ) An economic reward (b) Strong bargaining power
( d) Use of time (c) No bargaining power
(d) Infinite bargaining power
90. As a Factor of Production, "Labour" is —
( a ) Pe ri shable 97. The purpose of Labour Laws is primarily
(b) Pe rmanent to —
( c ) Both (a) and (b) (a) Increase bargaining power of
( d ) Neither (a) nor (b) Labour

(b) Maintain Labour Welfare
91. Which is not a characteristic of labour? (c) Guarantee work for each individual
(a) Labour is not separable from (d) All of the above
labourer
98. Labour is inseparable from the Labourer
(b) Labour is perishable
himself. This statement is —
(c)Labour is not a mobile (a) True
factor (b) False
(d) Labour is an active factor ( c ) Partially True
92. As a Factor of Production, "Labour" is
99. If a Worker terminates his
perishable. This means that —
employment with Company X, he —
(a) A day's labour lost cannot be
(a) Can get employed in another
completely recovered subsequently.
Company
(b) Every human being is mortal and will
(b) Cannot get employed in any
have to leave this world some day
Company at all
or the other.
(c) Becomes the Owner of Company X
(d) Will not get any Wages at all
5.7
100.Labour may be classified as — rates, there is a paradox of excess supply of
(a) Skilled Labour. This paradox is attributed to —
( b ) Semi—Skilled (a) Some more members of the family, who
( c ) U n s ki l l e d were not working before, may start
( d ) All of the above working.
(b) Workers may prefer to work overtime
101.Labour Power depends upon — to increase their earnings.
( a ) Physical strength (c) Both (a) and (b)
( b) Education and skills (d) Neither (a) nor (b)
( c ) Motivation to work
( d) All of the above 107.Supply of Labour and Wage Rates are
directly related. This statement is —
102.AII Labour is not productive' in the (a) True
sense that all efforts are not sure to (b) False
produce want—satisfying goods and ( c ) Partially True
services. This statement is — (d) None of the above
(a) True
(b) False 108.Supply of Labour and Wage Rates are always
( c ) Partially True directly related. This statement is —
( d ) None of the above (a) True
(b) False
103.Generally, Supply of Labour and Wage ( c ) Partially True
Rates are (d) None of the above
.........related.
(a) Directly 109.Supply of Labour and Wage Rates may
( b ) I n ve r se l y become inversely related at —
(c) Equally (a) Very high wage rates
( d ) Not related at all. (b) Very low wage rates
104.Direct relationship between Wage Rates
and Supply of Labour means that —
(a) Increase in Wage Rates will decrease 110.Which of the following statements is not true
the Supply of Labour about Labour Economies?
(b) Decrease in Wage Rates will increase (a) Larger Scale of Production enables the
the Supply of Labour division of labour
(c) Increase in Wage Rates will increase (b) Division of Labour is not profitable at
the Supply of Labour small scale of production
(d) Increase in Wage Rates will not (c) Division of Labour results in imporving
affect the Supply of Labour at all worker's skills
(d) Division of Labour is impossible in Firms
105.Generally, Supply of Labour and Wage Rates with large scale production
are directly related. However, at very high
wage rates, there is a paradox of reduction CAPITAL
in labour. This paradox is attributed to —
111 .....is that part of wealth of an individual or
(a) Preference to earn more money
community, which is used for further
(b) Preference to have more of rest and
production of wealth, or which yields an
leisure
income.
(c) Preference to restrict Supply
(a)Land
( b ) Enterprise
( c ) Capital
106.Generally, Supply of Labour and Wage Rates ( d ) Labour 112.As a Factor of Production,
are directly related. However, at very low wage "Capital" can be used for —
(a) Further production of wealth

5.8
(b) Yielding further income income ( d ) Neither (a) nor (b)
121.Income arising out of "Capital" is a concept.
(a) Stock
(b) F l o w
113 All Capital is Wealth, but all Wealth is not ( c ) Both (a) and (b)
Capital. This statement is — ( d ) Neither (a) nor (b)
(a) True
(b) False 122.As a Factor of Production, "Capital" is a
( c ) Partially True _________ means of Production.
(d) None of the above (a) Original
114.All Wealth is Capital, but all Capital is not (b) Primary
Wealth. This statement is — (c) Produced
(a) True (d) Monetary
(b) False
123."Capital" is considered as a "produced
means of production". This statement is —
(a) True
115.1f a Resource is lying idle, it will constitute (b) False
( a ) Wealth ( c ) Partially True
( b) Capital (d) None of the above
124.Capital * Wealth. This statement is —
(a) True
116.If a Resource is being used for generating (b) False
further revenue, it will constitute — ( c ) Partially True
( a ) Wealth (d) None of the above
( b) Capital 125.As a Factor of Production, "Capital" is —
( c ) Both (a) and (b) (a) A free gift of nature
( d) Neither (a) nor (b) (b) Produced by man alone
117.Which of these constitutes "Capital"? (c) Produced by man working with nature
(a) Land (d) Not relevant at all.
(b) Water 126.As a Factor of Production, "Capital" is —

( c ) Air ( a ) M o bile
( d ) Plant and Machinery ( b ) Produced means of production
( c ) Produced by man working with nature
118.Which of these constitutes does not
( d ) All of the above
constitute "Capital"?
(a) Factory Building 127.As a Factor of Production, Capital has
(b) Plant and Machinery relative mobility in the sense.
(c) Forests (a) Geographical
(d) Dams and Canals (b) Uti l i ty
119.As a Factor of Production, "Tools and (c) Both (a) and (b)
Accessories" constitute — (d) Neither (a) nor (b)
(a) Land 128.As a Factor of Production, Capital is mobile

( b ) Labour across —
( c ) Capital (a) Places / Countries
( d ) Enterprise (b) Uses / Purposes
120.As a Factor of Production, "Capital" is a (c) Both (a) and (b)
________ concept. (d) Neither (a) nor (b)
(a) Stock 129.As a Factor of Production, "Capital" is —

(b) F l o w (a) Perishable
( c ) Both (a) and (b) (b) Permanent
5.9
(c) Both (a) and (b) (c) Agricultural Goods.
(d) Neither (a) nor (b) (d) Public Goods.
CAPITAL FORMATION 137.Lesser production of would lead to lesser

production in future
130.The process of increase in the stock of real
(a) Public Goods
capital in a country is called —
(b) Consumer Goods
(a) Stock Increase
(c) Capital Goods
(b) Capital Formation
(d) Agriculture Goods
(c) Increase in GDP
(d) Resource Allocation 138.A 100% Consumption Economy —
131.Capital Formation means — (a) Cannot have any Capital Formation
(a) A sustained increase in the stock of real (b) Will become static and cannot grow
capital in a country. (c) Both (a) and (b)
(b) Production of more capital goods, which (d) Neither (a) nor (b)
are used for further production of goods. 139.Capital Formation is possible by —

(c) Investment
(a) Using whole of the current capacity to
produce only Consumer Goods
132.Capital Formation is required for — (b) Reducing present consumption to a
(a) Replacement and renovation of certain extent
existing machinery and equipment (c) Both (a) and (b)
(b) Creating additional productive capacity (d) Neither (a) nor (b)
(d) Neither (a) nor (b) 140.If current consumption is reduced for the
purpose of Capital Formation, that
133.Capital Formation is required for — represents a
(a) Increasing the efficiency of production ( a) Uneconomic activity
efforts ( b) Current sacrifice for future growth
(b) Expansion of output of consumer goods in (c ) Decrease in demand
the future, ( d) Decrease in resources
(c) Ensuring growth of the economy
(d) All the above 141.Capital Formation involves —
( a) Creation of Savings
134. For the purpose of Capital Formation —
( b) Mobilisation of Savings
(a) Current consumption is to be sacrificed
(c ) Investment of Savings into Real
to a certain extent
Capital
(b) Current income should be saved
( d) All of the above
(d) Neither (a) nor (b) 142. For the purpose of Capital Formation,
which of the following create "Savings" in
135.If the whole of the current capacity is used an economy?
to produce only Consumer Goods — (a) Individuals or Households
(a) Production of Consumer Goods in the (b) Business Enterprises
future will be affected (c) Government
(b) Economy cannot grow in future
(c) Production Possibility Curve (PPC) cannot
shift outside 143.For the purpose of Capital Formation,
(d) All of the above which of the following create maximum
"Savings" in an economy?
136.Larger production of goods would lead to (a) Individuals or Households
higher production in future. (b) Business Enterprises
(a) Consumer Goods. (c) G o ve rnme nt
(b) Capital Goods. (d) None of the above
5.10
144. Level of Savings depends upon — 152.A country has greater ability to save
(a) Ability to Save than a
(b) Willingness to Save .... country. in income levels, the
(c) Both (a) and (b) (a) Rich, Poor
(d) Neither (a) nor (b) (b) Poor, Rich
(c) Good, Bad
145.Ability to Save depends upon — (d) Nothing can be said
(a) Average level of income
(b) Distribution of national income. 153.Willingness to Save depends upon —
(c) Both (a) and (b) (a) An individual's concern about his
(d) Neither (a) nor (b) future
(b) Social setup in which the individual
146.If there is an increase in income
lives.
levels, the propensity to consume —
(a) Reduces
( b ) I n c re a se s
( c ) Remains constant 154.If Willingness to Save is higher, the
( d ) Becomes zero level of
..... will be higher.
147.If there is an increase in income ( a ) Voluntary Sav ings
levels, the ( b) Compulsory Savings
.......... reduces. ( c ) Forced Savings
(a) Propensity to consume ( d) None of the above
(b) Propensity to save
(c) Both (a) and (b) 155.If Willingness to Save is less, the level of
(d) Neither (a) nor (b) ...............................................................
will be higher.
148.1f there is an increase in income (a) Government regulated Savings
levels, the propensity to save — (b) Compulsory Savings
(a) Reduces, (c) Forced Savings
( b ) I n c re a se s (d) All of the above
( c ) Remains constant
156 ......... save by reducingtheir present
( d ) Becomes zero
consumption.
(a) Individuals or Households
149.If there is an increase
(b) Business Enterprises
.......... increases.
(c) Government
(a) Propensity to consume
(b) Propensity to save
(d) Neither (a) nor (b) 157save by way of Retained Earnings, i.e.
150. Higher the level of income, Higher is Undistributed Profits.
the level of Savings. This statement is — (a) Individuals or Households
(a)True (b) Business Enterprises
(b) False (c) Government
( c ) Partially True (d) All of the above
158.Which of these is a source of
151. Higher the level of income, Higher is
savings for Government?
the level of Savings. This statement is
(a) Tax and Fees Collections
true in respect of
(b) Profits of PSUs
(a) Individual Households only
(b) Overall Economy
5.11
159.Which of these play a role in (c) Finance
mobilisation of savings in an economy? ( d ) Earn Profit.
(a) Banks
166.Entrepreneur is also called as —
( b ) Financial Institutions
( a ) O r g a ni se r
( c ) Capital Market
( b ) Manager
( d ) All of the above
( c ) Risk—Taker
160. Real Capital Formation requires — ( d ) All of the above
(a) An entrepreneurial class which is
167.Entrepreneurship is a wider term than
prepared to bear the risk of business organization and management of a
(b) Economic and industrial policies
business. This statement is —
in which Investment is given (a)True
initiative (b) False
(c) An inducement to invest, e.g.
prospective rate of profit (d) None of the above
168. Entrepreneur —
161.Inducement to Invest is influenced by —
(a) Is the catalyst in the process of using
(a) Prospective Rate of Profit
the factors of production.
(b) Rate of Interest
(b) Gives direction to the usage of other
factors of production
162. Prospective Rate of Profit is also called — (d) Neither (a) nor (b)
(a) Rate of Interest on Bank Deposits
169. Entrepreneurship gets its reward (i.e.
(b) Marginal Efficiency of Capital
Profit), only after all other factors of
(c) Marginal Utility of Capital
production have been rewarded. This
Employed
statement is —
(d) Marginal Revenue
(a)True
163.Scheme of Subsidies for setting up (b) False
industries in backward regions leads to — ( c ) Partially True
(a) Balanced Regional Development (d) None of the above
(b) Socially—Beneficial Capital
170.The reward / incentive /
Formation
remuneration for Entrepreneurship is a
..................................... amount.
(a) Fixed
ENTREPRENEUR ( b ) Variable
( c ) Semi—Variable
164 is the person who combines the various ( d ) Irrelevant
factors
of production in the right proportions, 171.Enterpreneur holds the final
initiates the process of production and responsibility of the business. This
bears the risk involved in it. statement is —
(a) Capitalist (a) True
(b) Socialist (b) False
( c ) G o ve rn me n t ( c ) Partially True
( d ) Entrepreneur ( d ) None of the above
165.The most important function of an 172.The functions of an Entrepreneur include

entrepreneur is to —
(a) Initiating a business enterprise and
(a) Innovate
resource coordination
( b ) Bear the sense of responsibility
5.12
(b) Risk—bearing or uncertainty— (c) Abnormal Profits
bearing (d) All of the above 180.The difference
(c) Introducing Innovations on a between Economist's Profit and
continuous basis Accountant's Profit is
(a) Consideration of Direct Cost
173.Innovation theory of entrepreneur is (b) Consideration of depreciation
propounded by— (c) Consideration of Opportunity Cost
(a) Prof knight (d) There is no difference
( b ) Schumpeter
181.To enable Employees enjoy a good standard
( c ) M ax we be r
of living and maintain work—life balance, is
( d ) Peter Ducker
a
174.Which of the following constitute (a) Social Objective
Innovation? (b) Human Objective
(a) Introduction of a new or improved (c) National Objective
product (d) Economic Objective
(b) Utilisation of new or improved source
of Raw Material 182.Which of the following is a National
(c) Introduction of new or improved Objective of an enterprise
production methods / machinery (a) To remove inequality of opportunities
(d) All of the above and provide fair opportunity to all to
work and to progress
175.Which of the following constitute (b) To make the job contents interesting
Innovation? and challenging
(a) Opening—up new or improved (c) To avoid profiteering and anti—social
markets practices
(b) Utilisation of new or improved source of (d) To maximize profits
Raw Material
(c) Introduction of a new or improved 183.To ensure that the Enterprise's output
product does not cause any type of pollution — air,
(d) All of the above water or noise, is a
(a) Social Objective
176.Organic Objectives of Enterprises — (b) Human Objective
( a ) Survival (c) National Objective
( b ) Growth and Expansion (d) Economic Objective
( d ) Either (a) or (b)
177. Profit Making is a — Part B- PRODUCTION

(a) Organic Objective
(b)
(c)
Social Objective
Economic Objective
FUNCTION
1 is the functional relationship
178.Accounting Profits is also called — between physical inputs (i.e. factors of
(a ) Book Profit production), and physical outputs (i.e.
(b) Pure Profit quantity of goods / services produced).
(c) Super Profit (a) Input—Output Function
(d) Super Normal Profit (b) Demand—Supply Function
(c) Production Function
179.Economic Profit is also called — (d) Cost Function
(a) Pure Profits
(b) Super Normal Profits 2. Production Function deals with —
5.13
(a) Quantitative Values of Input and ( b ) Increasingtrend
Output ( c ) Decreasing trend
(b) Monetary Values of Products ( d ) Constant
10. Production Function specifies the output
that can be produced with given quantities of
3. shows the output produced with a given inputs, in the existing state of technology.
amount of inputs. (a) Minimum
(a) Cost Function (b) Maximum
(b) Production Function (c) Average
(c) Demand Function (d) Z e r o
(d) Isoquants
11. Production Function specifies the .
4. ... shows the overall output generated at a quantities of various inputs that are required
given level of input. to yield a given quantity of output.
(a) Cost Function (a) Minimum
(b) Production Function (b) Maximum
(c) Marginal Rate of Substitution (c) Average
(d) Isocost and Isoquants (d) Z e r o
5. Production Function explains the 12. In a Cobb-Douglas production function, two

relationship between — inputs are
(a) Maximum Output which can be produced (a) Land and Labour
from given units of different inputs (b) Capital and Labour

(b) Price and Cost (c) Capital and Entrepreneur
(c) Maximum Output which can be (d) Entrepreneur and land
produced at various points of time
13. Under Cobb- Douglas productionfunction
(d) Various Stages of Production
contribution of capital and labour respectively-
(a) 314t h , 1/4 t h
6. Production function is _____
(b) 1/4th ,314th
(a) purely technical relationship between
(c) 1/2 th , 1/2 th
input &output
(d) none of the above
(b) Purely economic relationship between
input &output 14. Production Function specifies —
(c) Both (a) & (b)
(a) Maximum amount of output that can
(d) None of the these
be produced with given quantities of
7. In a Production Function, Input means — inputs
(b) Minimum quantities of various inputs that
(a) Goods and Services produced
(b) Factors of Production required
are required to yield a given quantity of
output.
8. In a Production Function, Output means —
(a) Goods and Services produced 15. Which of the following is the best definition of
(b) Factors of Production required the "Production Function"?
(c) Both (a) and (b) (a) The relationship between market price
(d) Neither (a) nor (b) and quantity supplied

(b) The relationship between the firm's
total revenue and the cost of production
9. Production Function states the (c) The relationship between the quantities
relationship between inputs and output, of inputs needed to produce a given level of
keeping technology output
(a)Zero
5.14
(d) The relationship between the quantity of (d) Both (a) and (c)
inputs and the firm's marginal cost of
production SHORT RUN vs LONG RUN
16. The Production Function is a relationship 21. The time period(s) covered in Economics Study is
between a given combination of inputs and— / are —
(a) Another combination that yields the same (a) short—run
output (b) long—run
(b) The highest resulting output (c) Both (a) and (b)
(c) The increase in output generated by one- (d) Neither (a) nor (b)
unit increase in one output
(d) All levels of output that can be generated
22. ..... is the period of time in which all but one
by those inputs factor of production are variable.
(a) Short—run
17. In general, most of the Production (b) Long—run
Functions measure — (c) Medium—run
(a) Productivity of factors of production. (d) None of the above
(b) Relation between the factors of
production. 23. In the short—run, factor(s) of production is /
(c) Economies of Scale. are variable.
(d) Relations between change in physical inputs (a) All
and physical output. (b) N o n e
(c) One
18. A Firm's Production Function— (d) All of the above
(a) Shows how much output and the level of
input required for the firm to maximize 24. Variable Factors means those Factors of
profits. Production —
(b) Establishes the minimum level of output (a) Which can be only changed in the long
that can be produced using the available run
resources. (b) Which can be changed in the short
(c) Shows the maximum output that can run
be produced with a given amount of (c) Which can never be changed
inputs with available technology. (d) All of the above
(d) Shows labour force which is employed
25. There is only one Fixed Factor of Production in
19. Which of the following is/are an outcome the short—run planning horizon. This
of a technological change? statement is —
(a) A downward shift in the production (a) True
function (b) False
(b) Same output with fewer inputs or more ( c ) Partially True
output with same inputs (d) None of the above
(c) Invention of a product or production
process 26. The difference between Fixed and Variable
(d) Both (b) and (c) above Factors of Production is relevant in —
(a) Medium—run
20. Which of the following statements (b) Short —run
regarding Production Function is false? (c) Long—run
(a) It just shows the relationship between (d) All of the above
output and input
(b) It does not provide any information on 27. In the short—run, factors of production
the least—cost Capital Labour changes.
(a) Proportion between
combination
(c) In reveals the output that yields the (b) Quantity of
maximum profit (c) Both (a) and (b)
5.15
(d) Neither (a) nor (b) (b) A period where the law of diminishing
returns does not hold
28. In the short—run, the proportion between (c) No variable inputs — that is all of the
factors of production — factors of production are fixed
(a) Remains constant (d) All inputs being variable
(b) Changes
(c) Is zero 35 is the period of time in which all the
(d) Is infinity factors of production are variable.
(a) Short—run
29. In the short—run, the proportion between (b) Long—run
factors of production changes because — (c) Medium—run
(a) One of the Factor is kept constant (d) None of the above
(b) Every Factors is kept constant
(c) It is not the long—run 36. In the long—run, factor(s) of production
(d) There is no explanation for such is /
behaviour are variable.
(a) All
30. Law of ........... is applicable in the short— (b) Many
run. (c) One
(a) Variable Proportions (d) None
(b) Returns to Scale
(c) Both (a) and (b) 37. All Factors of Production become variable
(d) Neither (a) nor (b) in —
(a) Medium—run
31. Law of Variable Proportions is applicable to — (b) Short —run
(a) Medium—run (c) Long—run
(b) Short —run (d) None of the above
(c) Long—run
(d) All of the above 38. There is no Fixed Factor of Production in
the long—run planning horizon. This
32. Which of the following activities cannot take
statement is —
place in the short—run?
(a)True
(a) Changing the quantity of labour
(b) False
employed
(b) Changing the input combination
(c) Regular maintenance of the Plant to
ensure efficient production 39. The difference between Fixed and Variable
(d) Installation of an Additional Plant to meet Factors of Production arises only in —
future requirements (a) Medium—run
(b) Short —run
33. In describing a given production (c) Long—run
technology, the short run is best (d) None of the above
described as lasting — 40. In the long—run, ....... factors of

(a) Up to six months from now production changes.
(b) Up to five years from now ( a) Proportion between
(c) As long as all inputs are fixed ( b) Q u anti ty o f
(d) As long as at least one input is (c ) N e e d f o r
fixed ( d) None of the above
34. The short run, as economists use the 41. In the long—run, the quantity of factors
phrase, is characterized by — of production
(a) At least one fixed factor of production (a) Remains constant
and firms neither leaving nor entering (b) C h a n g e s
the industry (c) I s z e r o
5.16
(d) Is infinity (c ) Plant Innovation
( d) Production Function
42. In the long—run, the quantity of factors
of production changes because — 48. The introduction of new product with
(a) One of the Factor is kept constant added features in the market is known as
(b) Every Factor is kept constant —
(c) Every Factor is considered variable ( a) Process Innovation
(d) There is no explanation for such ( b) Product Innovation
behaviour (c ) Plant Innovation

( d) Production Function
43. Law of ............ is applicable in the 49. Which of the following statements
long—run. regarding Product and Process Innovation
( a) Variable Proportions is true?
( b) Returns to Scale (a) It is difficult to quantify product
(c ) Both (a) and (b) innovation, as compared to process

( d) Neither (a) nor (b) innovation
(b) It is difficult to quantify process
44. Law of Returns to Scale is applicable to — innovation, as compared to product
(a) Medium—run innovation
(b) Short —run (c) Neither of the innovation types can
(c) Long—run quantified
(d) All of the above (d) Quantifying both the innovation types
45. Which of the following statements is equally easy / difficult

regarding short run and long run is true?
(a) Firms plan for the long run but
50. Innovation is of more importance as it helps
operate in the short run in increasing the standard of living in the long run
( a ) Process
(b) Firms plan in the short run but
( b) Product
operate in the long run
(c) P l a n t
(c) Firms operate and plan as well in the
( d) There is no relationship between
long run
(d) Firms operate and plan as well in the
innovation processes and standard of
short run living
TOTAL, AVERAGE AND MARGINAL
46. To economists, the main difference
PRODUCT
between the short run and the long run is
that — 51 is the total output resulting from the efforts
(a) In the short run all inputs are fixed, of all the factors of production, combined
while in the long run all inputs are together at any time.
variable (a) Total Product
(b) In the short run the Firm varies all of (b) Average Product
its inputs to find the least-cost (c) Marginal Product
combination of inputs (d) All of the above
(c) In the short run, at least one of the 52 is the Total Product per unit of the
Firm's input levels is fixed Variable Factor.
(d) In the long run , the Fi rm i s
(a) Total Product
making a constrained decision about
(b) Average Product
how to use existing Plant and
(c) Marginal Product
equipment efficiently
47 is the improvement in the production
53. .......... = Total Product ÷ Quantity of the
techniques for existing production.
( a) Process Innovation
Variable Factor.
(a) Total Product
( b) Production Innovation
(b) Average Product
5.17
(c) Marginal Product 59. If the inputs of all but one factor are held
(d) All of the above constant, then will vary with the quantity
used of the Variable Factor.
54. is the change in Total Product, for one unit (a) Total Product
change in the quantity of Variable Factor. (b) Average Product
(a) Total Product (c) Marginal Product
(b) Average Product (d) All of the above
(c) Marginal Product
(d) All of the above 60. If the inputs of all but one factor are held
constant, then Total Factor will —
55. ..is the addition made to Total Product, by (a) Remain constant
an additional unit of input of the Variable Factor. (b) Become zero
(a) Total Product (c) Vary with the quantity used of the
(b) Average Product Variable Factor.
(c) Marginal Product (d) Become infinity
61. When 50 hours of Labour are spent, total
56. Marginal Product is — output quantity is 2,000 units, When 55 hours
(a) The change in Total Product, for one of Labour are spent, total output quantity is
unit change in the quantity of Variable 2,250 units. Here, Marginal Product will be —
Factor. ( a ) 2,250
(b) The addition made to Total Product, by ( b ) 2,000
an additional unit of input of the Variable ( c ) 250
Factor (d) 5 0
(d) Neither (a) nor (b) 62. Suppose the first four units of a variable
input generate corresponding total outputs of
57. The Marginal Product of an input is 150, 200, 350 and 550. The marginal product
(a) Extra product produced by one extra unit of of the third unit of input is:
input while other inputs are held constant ( a ) 5 0
(b) Extra product produced by reducing one ( b ) 100
unit of input while other inputs are held ( c ) 150
constant ( d ) 200
(c) Reduction in total product due to one extra
unit of input while other inputs are held Use the following information to answer next
constant 3 questions
(d) Reduction in total product by reducing one Hours of Total Marginal
unit of input while other inputs are 0
Labour —
Output —
Product
1 100 100
changing. 2 — 80
58. The Marginal Product of a variable input is 3 240 —
best described as—
(a) Total product divided by the number of 63. What is the Total Output when 2 hours of
units of variable input Labour are employed?
(b) The additional output resulting from a one ( a ) 8 0
unit increase in the variable input ( b ) 100
(c) The additional output resulting from a one ( c ) 180
unit increase in both the variable and ( d ) 200
fixed inputs 64. What is the Marginal Product of the third
(d) The ratio of the amount of the variable hour of Labour?
input that is being used to the amount of ( a ) 6 0
the fixed input that is being used ( b ) 8 0
( c ) 100
( d ) 240
5.18
65. What is the Average Product of the first 72. Find the value of "G" in the above
three hours of Labour? Table.
( a ) 6 0 (a) 500
( b ) 80 (b) 525
( c ) 100 (c) 550
( d ) 240 (d) 575
Let TP = Total Product, AP = Average Product 73. Find the value of "H" in the above Table.
and MP = Marginal Product. Use the following
(a) Nil
table and answer the next 10 Questions.
(b) 1,000
Quantity of TP (in AP (in MP (in
(c) 2,000
Variable units) units) units)
(d) Cannot be calculated
Factor
1 1,000 A B
2 C D 600 74. Find the value of "I" in the above Table.
3 E 700 F
4 2,100 G H (a) Nil
5 I 400 3 (b) 1,000
(c) 2,000
66. Find the value of "A" in the above Table. (d) Cannot be calculated
(a) 1,000
75. Find the value of "3" in the above Table.
(b) 2,000
(a) Nil
(c) 3,000
(b) — 100
(d) 0
(c) + 100
67. Find the value of "B" in the above Table. (d) Cannot be calculated
(a) 1,000
76. If Total Product = 1,00,000 units when
(b) 2,000
20,000 hours of Labour are used, then
(c) 3,000
Total Product =
(d) 0
(a ) 1,00,000
(b) 20,000
68. Find the value of "C" in the above Table.
(a) 1,000
(c) 5
(d) 1,20,000
(b) 1,300
(c) 1,600
77. If Total Product = 1,00,000 units when 20,000
(d) 1,900
hours of Labour are used, then Average
Product=
69. Find the value of "D" in the above Table.
(a ) 1,00,000
(a) 1,000
(b) 20,000
( b ) 800
(c) 5
(c) 600
(d) 1,20,000
( d ) 400
Read the Table below & answer the

70. Find the value of "E" in the above Table.
following 8 questions
(a) 1,100
(b) 1,600 Labour Marginal Total Average
(c) 1,700 Input Product Product Product
(d) 2,100 0 0 0 0
1 25
71. Find the value of "F" in the above Table. 2 90
3 120
(a) 500
4 140
(b) 600 5 28
(c) 700 6 20
(d) 8 0 0
5.19
78. If Labour Input = 1, Total Output is— 86. As quantity of the Variable Factor
( a ) 2 5 increases, Total Product (TP) Curve —
( b ) 3 0 (a) Always increases
( c ) 5 0 (b) Always decreases
( d ) 7 5 (c) First increases, reaches a maximum,
and then decreases.
79. If Labour Input = 2, Marginal Product is—
(d) First decreases, reaches a minimum,
(a) 25
and then increases.
(b) 90
(c) 6 5
87. If Total Product (TP) increases, Marginal
(d) 115
Product (MP) will be —
80. If Labour Input = 4, output per worker is: ( a ) Positive
( a ) 2 0
(b) Negative
( b ) 3 5
(c) Zero
( c ) 4 5
(d) Infi ni ty
( d ) 9 0
88. If Total Product (TP) increases at an
81. If Labour Input = 6, the marginal product
increasing rate, Marginal Product (MP) will be
of labour is:
—
(a) 120
(a ) Increasing
(b) — 20
(b) Decreasing
(c) 1 5 (c) Z e r o
(d) 1 0 (d) Infinity
82. Output per worker is maximized at a 89, If Total Product (TP) increases at a
Labour Input of: decreasing rate, Marginal Product (MP) will
be —
(a) 2
(a ) Increasing
(b) 4
(b) Decreasing
(c) 6
(c) Z e r o
(d) 8
(d) Infi ni ty
83. The firm's output is at a short run
90. If Total Product (TP) is maximum, Marginal
maximum at a Labour Input of :
Product (MP) will be —
(a) 2
(a) Positive
(b) 3
(b) Negative
(c) 4
(c) Z e r o
(d) 6
( d ) Infi ni ty
84. When Labour Input = 5, Marginal Product

91. What is the maximum point of TP?
is—
(a) When AP becomes zero
( a ) 2 0
(b) When MP becomes zero
( b ) 120
(c) At the intersecting point of AP & MP
( c ) 0
(d) None of these
( d ) -120
92. If TP decreases, MP will be —
85. At what level of Labour Input are MP and
(a) Positive
AP equal?
( b ) Negative
(a) 1
(c) Z e r o
(b) 2
( d ) Infi ni ty
(c) 3
(d) 4 93. Marginal Product (MP) Curve —
5.20
(c) First decreases, reaches a minimum, (d) None of the above
and then increases
(d) First increases, reaches a maximum,
100.Which of the following is correct?
and then decreases
(a) If Marginal Product is positive and
94. Average Product (AP) Curve — falling, Total Product will rise at a
decreasing rate.
(b) Total Product divided by Quantity of
Variable Factor equals Average Product.
(c) First decreases, reaches a minimum,
and then increases (c) Marginal Product and Average Product
can be calculated from Total Product.
(d) First increases, reaches a maximum,
and then decreases (d) All of the above.
101.The point where MP is maximum is called —

95. Marginal Product (MP) —
(a) Point of Increase
(a) Will have positive values only
(b) Will have negative values only (b) Point of Indifference
(c) Point of Inflexion
(c) Can be positive or zero or even
(d) Point of Shut—down
negative.
(d) Can be positive or zero, but not
102.At what point is the Marginal Product
negative.
maximum?
96. If Marginal Product (MP) Curve is ( a ) Tu rning Point
depicted on a graph with Quantity on X ( b ) Equilibrium Point
axis — (c) Focal Point

(a) MP will not go below the X axis. (d) Inflexion Point
(b) MP may go below the X axis.
103.At the Point of Inflexion, the Marginal
(c) MP cannot be depicted on the graph Product is —
at all.
(a ) Increasing
(b) Decreasing
97. Average Product (AP) — (c) Maximum
(a) Will have positive values only (d) Negative
(b) Will have negative values only
(c) Can be positive or zero or even
104.At the Point of Inflexion —
(a) Total Product is maximum
negative.
(b) Average Product is maximum
(d) Can be positive or zero, but not
(c) Marginal Product is maximum
negative.
98. What is the relationship between AP and
MP? 105.At the Point of Inflexion, TP will generally —
(a) Show increasing trend
(a) AP and MP both rise first and
(b) Show decreasing trend
thereafter fall
(c) Equal to zero
(b) MP Curves always lies half—way
(d) Be negative
between AR Curve and Origin
(c) AP and MP both can be zero or
negative 106.When AP rises as a result
quantity of variable input —
(d) All of these
(a) MP is more than AR
99. If Average Product (AP) Curve is depicted on (b) MP is less than AP

a graph with Quantity on X axis — (c) MP = AP
(a) AP will not go below the X axis. (d) There is no relationship between MP and
(b) AP may go below the X axis. AP

(c) AP cannot be depicted on the graph
at all.
5.21
(e) 107.When Average Product (AP) rises as (c) MP > AP
a result of an increase in the quantity of (d) MP = 0
variable input —
113.The Average Product of Labour is
(a) MP < AP
maximized when Marginal Product of
(b) MP = AP
Labour —
(c) MP > AP
(a) Equals the Average Product of
( d ) There is no relationship between MP
Labour
and AP
(b) Equals zero
108.When Average Product (AP) decreases as a (c) Is maximized
result of an increase in the quantity of (d) None of the above
variable input — 114.Marginal Product (MP) Curve cuts average

(a) MP is more than AP. product (AP), when —
(b) MP is less than AP. (a) MP < AP
(c) M P = A P (b) MP = AP
(d) There is no relationship between MP (c) MP > AP
and AP (d) MP = 0
109.When Average Product (AP) decreases as a 115.When Marginal Product (MP) = Average
result of an increase in the quantity of Product (AP), it means that AP is —
variable input — (a ) At its maximum
(b) At its minimum
(a) MP < AP
(c) Z e r o
(b) MP = AP
(d) Infi ni ty
(c) MP > AP
116.Marginal Product (MP) Curve cuts
Average Product (AP) Curve —
and AP
(a) MP = AP
110.When Average Product (AP) decreases as a ( b ) AP is maximum
result of an increase in the quantity of ( c ) MP is falling
variable input — ( d ) All of the above
(a) MP < AP
117.When is Average Product at its maximum?
(b) MP = AP
(a) When AP intersects MP
(c) MP > AP
(b) When AP intersects TP
(c) At the Point of Inflexion
and AP
111.If the Marginal Product of Labour is
below the 118.Marginal Product (MP) Curve cuts
Average Product of Labour, it must be true that Average Product (AP) Curve —
(a) From above
(a) The Marginal Product of Labour is
(b) From below
negative
(c) MP does not cut AP at all
(b) The Marginal Product of Labour is
zero
(c) The Average Product of Labour is
119.Marginal Product (MP) rises steeply,
falling
and also declines slightly earlier than
(d) The Average Product of Labour is
Average Product (AP) Curve. This statement
negative
is —
(a) True
112.When Average Product (AP) is at its
(b) False
maximum
(a) MP < AP
(b) MP = AP
5.22
120.The Marginal, Average, and Total (b) Law of Increasing Returns to Scale
Product Curves encountered by the (c) Law of Variable Proportion
Firm producing in the short run exhibit (d) Law of Diminishing Marginal
all of the following relationships except Utility

— 5. The Law of Variable Proportions operates
(a) When Total Product is rising, in —
Average and Marginal Product may be (a) Medium—run
either rising or falling (b) Short —run
(b) When Marginal Product is negative, (c) Long—run
Total Product and Average Product are (d) All of the above
falling
(c) When Average Product is at a 6. In the , all factors of production cannot
maximum, Marginal Product equals be increased or decreased simultaneously.
Average Product, and Total Product is (a) Medium—run
rising (b) Short —run

(c) Long—run
(d) When Marginal Product is at a
maximum, Average Product equals
Marginal Product, and Total Product is 7. The Law of Variable Proportions is also
falling called —
Part C- LAW OF (a) Law of Proportionality

(b) Law of Diminishing Returns
VARIABLE PROPORTIONS (c) Law of Diminishing

Physical
Marginal
Productivity
1. The Law of analyses the production
function with one factor as variable,
keeping quantities of other factors fixed. 8. The Law of Variable Proportions deals
(a) Returns to Scale with —
(b) Multiple Proportions ( a ) Output Quantities
(c) Variable Proportions ( b) Monetary Values
(d) Fixed Proportions ( c ) Both (a) and (b)
2 . Th e L a w o f V a r i a b l e P r o po r t i o ns
9. Which of the following is an assumption
a n a l y se s the wi th o ne facto r as
in the Law of Variable Proportions?
vari abl e , kee pin g quantities of other
(a) The state of technology is
factors fixed.
constant and unchanged
( a ) Revenue Function
(b) Only physical quantities of inputs
( b) Production Function
and outputs are considered
( c ) Cost Function
(c) Only one factor input is considered
( d) Demand and Supply Function
variable, while all other factors are
3 . Th e L a w o f deals with input—output fixed
relationship, when the output is
increased by varying the quantity of one 10. Which of the following is an assumption
input. in the Law of Variable Proportions?
( a) Variable Proportions (a) The Fixed Factor of production is
( b) S u p p l y scarce
(c ) D e m a n d (b) There are no perfect substitutes for
( d) Returns to Scale the Fixed Factor
(c) Factors of Production can be used
4. Which Law examines the production
in any proportion
function keeping one factor variable?
(a) Law of Returns to Scale
5.23
11. Assumption which are applicable (b) Can be used in any proportion
under Law of Variable Proportion are— (c) Cannot be used at all
(a) State of technology is constant (d) Do not affect production
(b) Quantities of some inputs is kept
17. In agriculture, the land area is taken as
fixed
constant, while number of workers can
(c) Economic profitability in monetary
be increased. If we apply the Law of
terms is not considered
Variable Proportions in this
(d) All of these
situation, it means that the Fixed
12. Which of the following is not an Factor of Production is —
assumption in the Law of Variable ( a ) Number of workers
Proportions? ( b) L a n d
(a) There are no perfect substitutes for ( c ) Units of Output produced
the Fixed Factor ( d) All the above
(b) Factors of Production can be used 18. In agriculture, the land area is taken as
in any proportion constant, while number of workers can
(c) Only physical quantities of inputs
be increased. If we apply the Law of
and outputs are considered Variable Proportions in this situation,
it means that the Variable Factor of
13. Which of the following is not an Production is —
( a ) Number of workers
assumption in the Law of Variable
( b) L a n d
Proportions?
(a) There are no perfect substitutes for
the Fixed Factor
(b) Only one factor input is considered 19. In the production of wheat, all of the
variable, while all other factors are following are variable factors that are
fixed. used by the farmer except —
(c) State of Technology is improved as (a) The seed and fertilizer used when the
more output is produced crop is planted
(d) Only physical quantities of inputs (b) The field that has been cleared of
and outputs are considered trees and in which the crop is planted
14. Law of Variable Proportions is valid when (c) The tractor used by the farmer in
— planting and cultivating not only
(a) Only one input is varied and all other wheat but also corn and barley
inputs are kept constant (d) The number of hours that the farmer
(b) All Factors are kept constant spends in cultivating the wheat fields
(c) All inputs are varied in the same
20. If all factors are required to be used
proportion in fixed proportions, then the Law of
Variable Proportions —
15. The Law of Variable Proportions (a) Wi l l appl y
analyses the economic profitability of ( b ) Will not apply at all
the Firm in monetary terms also. This ( c ) Both (a) and (b) are true to some
statement is — extent
(a)True ( d ) Neither (a) nor (b) is true
(b) False
21. As per Law of Variable Proportions, as
(c) Partially True
the quantity of one input which is
combined with other fixed i n p u t s i s
16. The Law of Variable Proportions increased, the o f t h e Variable
assumes that factors of production — Input must eventually decline.
(a) Can be used only in a specified ( a) Total Productivity
proportion ( b) Average Productivity
5.24
(c ) Marginal Productivity (c) Negative Marginal Returns, Increasing
( d) All the above Returns, Diminishing Returns
22. The Law of Variable Proportions is drawn (d) Diminishing Returns, Negative
under all of the assumptions Marginal Returns, Increasing Returns

mentioned below except the 27. Which of the following is not a stage
assumption that — in Law of Variable Proportions?
(a) The Technology is changing ( a ) Increasing Returns
(b) There must be some inputs whose ( b) Constant Returns
quantity is kept fixed ( c ) Diminishing Returns
( d) Negative Returns
(c) We consider only physical inputs
and not economically profitability in 28. The stage of Increasing Returns
monetary terms applies from
(d) The technology is given and stable ............ to .................
(a) Origin to Point where AP is
23. The Law of Variable Proportions come
maximum
into being when—
(b) Point where AP is maximum to Point
(a) There are only two variable
when TP is maximum
factors.
(c) Point when TP declines and and MP
(b) There is a fixed factor and a
becomes negative.
variable factor.
(d) All the above
(c) All factors are variable.
(d) Variable factors yield less. 29. In the stage of Increasing Returns,
Total Product (TP) —
24. states that when Labour increases with (a) Remains constant
capital being the same, the Marginal (b) I n c re a se s
Productivity of Labour will increase at (c) D e c re a se s
first but start decreasing later. (d) Becomes negative
(a) Law of Equi—Marginal Returns
30. In the stage of Increasing Returns,
(b) Law of Diminishing Marginal
Average Product (AP) —
Utility
(a) Remains constant
(c) Law of Variable Proportions
(b) I n c re a se s
(d) Law of Constant Returns
(c) D e c re a se s
25. When a Factory is working at 70% (d) Becomes negative
capacity, increasing of variable inputs, 31. In the stage of Increasing Returns,
leads to— Marginal Product (MP)-
( a) Increasing of output (a) Remains constant
( b) Decreasing of output according to the (b) I n c re a se s
Law of Diminishing Returns (c) D e c re a se s
(c ) Increasing of output up to full capacity (d) First increases, reaches a maximum
and later decreasing of the Marginal and then decreases
Product according to the Law of
Diminishing Returns 32. What result we get in the first stage of
( d) Decreasing of output up to full Law of Variable Proportions?
capacity and later increasing of the (a) Total Product is increasing at an
output increasing rate
(b) Average Product increases only till
26. The order of stages in the Law of
Inflexion Point
Variable Proportions are —
(c) (a) but not (b)
(a) Increasing Returns, Negative Marginal
(d) Both (a) & (b)
Returns, Diminishing Returns
(b) Increasing Returns,Diminishing 33. Which of the following is true?
Returns, (a) MP does not decrease during the
Negative Marginal Returns First Stage
5.25
(b) TP remains positive during the First that variable input begins to increase
Stage steadily.
(c) AP starts declining after the Point of (b) Assumes that there is
Inflexion technological
(d) All of these improvement over time.
(c) States that beyond some level of a
34. A Firm is operating at an output level,
variable input, the Marginal Product
where its Total Product is increasing at
of that Variable input begins to
an increasing rate. This implies that the
decrease steadily.
Firm's
(d) Informs a Firm whether or not to use
(a) Marginal Cost must be falling at an
a factor input.
increasing rate
(b) Marginal Product is increasing at a 40. In case of law of variable proportions,
increasing rate diminishing returns occur.
(c) Average Product is increasing (a) When units of a variable input are
(d) Both (a) and (c) added to a fixed input and total
product falls
35. Why does the Law of Increasing Returns
(b) When units of a variable input are
operate?
added to a fixed input and marginal
(a) Full Use of Fixed Indivisible
product falls
Factors
(c) When the size of the plant is
(b) Efficiency of Variable Factors
increased in the long run.
(c) Need to reach the right
(d) When the quantity of the fixed input is
combination
increased and returns to the variable
input falls.
36. Which of these is a reason for the
operation of Law of Increasing Returns? 41. In the stage of Diminishing Returns,
(a) Specialisation of functions
Total Product (TP) —
(a) Remains constant
(b) Division of Labour
(b) I n c re a se s
(c) Effective use of Fixed Factor of
(c) D e c re a se s
Production
(d) Becomes negative
37. Which of the following is the reason of 42. In the stage of Diminishing Returns,
the working of law of increasing returns? Average Product (AP) —
(a) Fuller utilization of fixed factor (a) Remains constant
(b) Indivisibility of factor (b) I n c re a se s
(c) Greater specialization of factor (c) D e c re a se s
(d) All of the above (d) Becomes negative
38. The stage of Diminishing Returns 43. In the stage of Diminishing Returns,
applies from Marginal Product (MP) —
............. to ................. (a) First increases, reaches a maximum
(a) Origin to Point where AP is and then decreases
maximum (b) D e c re a se s
(b) Point where AP is maximum to Point (c) I n c re a se s
when TP is maximum (d) Remains constant
(c) Point when TP declines and and MP
becomes negative. 44. In the stage of Diminishing Returns —
(d) All the above (a) MP increases but AP decreases
(b) MP decreases but AP increases
39. The Law of Diminishing Returns —
(c) MP and AP show increasing trend
(a) States that beyond some level of a
(d) MP and AP show decreasing trend
variable input, the Average Product of
5.26
45. In the stage of Diminishing Returns — (c) All factory inputs are increased by the
(a) MP and AP remain positive same proportion
(b) MP and AP become negative (d) Technology remains constant
(c) MP is positive but AP becomes 52. In which stage of production are the
negative Average Product and Marginal Product
(d) MP becomes negative but AP decreasing with the Marginal Product above
remains positive zero (positive)?
(a) In the stage of Constant Returns
(b) In the stage of Decreasing Returns
46. Which of the following statements show the (c) In the stage of Increasing Returns
Stage of Diminishing Returns under the (d) Both (a) and (c)
Law of Variable Proportions?
(a) Marginal Product is negative 53. During the stage of Decreasing Returns —
(b) Marginal Product is falling and it is (a) AP is negative
negative (b) MP is decreasing
(c) Marginal Product is falling but it is (c) MP is negative
positive (d) Both (a) and (b)
54. When the Law of Diminishing Returns
47. Which of the following is a reason for the operates
operation of the Law of Diminishing Returns? (a) Marginal Cost falls at a decreasing rate
(a) Inefficiency of Fixed Indivisible Factors (b) Marginal Cost increases
(b) Inadequacy of Fixed Indivisible Factors (c) Marginal Cost falls at a constant rate
(c) Indifference of Fixed Indivisible Factors (d) Marginal Cost falls at an increasing
(d) Immobility of Fixed Indivisible Factors rate
48. As per the Law of Diminishing Returns, Fixed 55. When the Law of Diminishing Returns
Factor becomes inadequate because — sets in, then—
(a) It is scarce
(b) It has no perfect substitutes (a) Marginal Cost falls at a decreasing rate
(c) Both (a) and (b) (b) Marginal Cost falls at an increasing
(d) Neither (a) nor (b) rate
(c) Marginal Cost falls at a constant rate
49. The "Law of Diminishing Returns" applies to—
(d) Marginal Cost increases
(a) The short run, but not the long run
(b) The long run, but not the short run 56. Diminishing Marginal Returns implies —
(c) Both the short run and the long run (a) Decreasing Average Variable Costs
(d) Neither the short run nor the long run (b) Decreasing Marginal Costs
(c) Increasing Marginal Costs
50. Diminishing Returns occur—
(d) Decreasing Average Fixed Costs
(a) When units of a variable input are added
to a fixed input and Total Product falls. 57. The Third Stage of Law of Variable Proportion is
(b) When units of a variable input are added known as—
to a fixed input and Marginal Product (a) Law of Negative Returns
falls (b) Law of Decreasing Returns
(c) When the size of the Plant is increased in (c) Law of Diminishing Returns
the long run (d) All of these
(d) When the quantity of the fixed input is
increased and returns to the Variable 58. The stage of Negative Marginal Returns
Input fails applies from
.................to ...................
51. Law of Diminishing Returns is not relevant
(a) Origin to Point where AP is maximum
when—
(b) Point where AP is maximum to Point when
(a) All labourers are equally efficient
TP is maximum
(b) The Time Period is short
5.27
(c) Point when TP declines and and MP (c) Change in proportions in which Factors
becomes negative. are used
(d) All the above (d) Short—Run
59. In the stage of Negative Marginal Returns, 66. In which of the following situations, the
Total Product (TP) — Law of Variable Proportions will not apply?
(a) Remains constant (a) Scarcity of Fixed Factor of
(b) Increases Production
(c) Decreases (b) Availability of Perfect Substitutes for the
(d) Remains at zero. Fixed Factor
60. In the stage of Negative Marginal Returns, (c) Change in proportions in which Factors
Average Product (AP) — are used
(a) Remains constant (d) Same level of technology
(b) Decreases
67. In case of , MP and AP may rise instead
(c) Becomes negative
of
(d) Increases
falling.
61. In the stage of Negative Marginal Returns, (a) Constant State of Technology
Marginal Product (MP) — (b) Improvement in Technology
(a) Increases (c) Erosion / Reduction in Technology
(b) Remains constant (d) All of the above
(c) Decreases but does not become
negative If Stage I = Increasing Returns, Stage II =
(d) Becomes negative Diminishing Returns, and Stage III = Negative
Marginal Returns, answer the next 6
62. Which of the following stages of production is
questions.
known as stage of Negative Returns?
(a) When AP is Negative
68. A Rational Producer will operate in —
(b) When MP is decreasing
( a ) Stage I
(c) When MP is Negative
( b ) Stage II
(d) Both (a) and (b)
(c) Stage III
63. The Law of Negative Marginal Returns (d) All of the above
operates b e c a u s e t h e V a r i a b l e
F a c t o r i s i n relation to the Fixed Factor 69, A Rational Producer will not operate in —
of Production. (a ) Stages I and II
(a) Optimal (b) Stages II and III
(b) Adequate (c) Stages III and I
(c) Excessive (d) All of the above
(d) Irrelevant
70. Stages I and III are called —
(a) Economic Absurdity
64. In which of the following situations, the (b) Economic Stability
Law of Variable Proportions will not apply? (c) Economic Equilibrium
(a) Improvement in technology (d) All of the above
(b) When all factors are proportionately
varied 71. Stages I and III are called —
(c) Where the factors must be used in (a) Economic Achievement
fixed proportions to yield the product (b) Economic Nonsense
(d) All of the above (c) Economic Optimality
(d) Economic Rationality
65. In which of the following situations, the
Law of Variable Proportions will not apply? 72. A Rational Producer will not operate in
(a) Long—Run Stage I due to the reason that —
(b) Same level of technology
5.28
(a) There is more scope for making the best (a) Medium—run
use of the Fixed Factor (b) Short —run
(b) Total Output still shows an (c) Long—run
increasing trend (d) All of the above
(c) Optimal Combination of Fixed and
4. Long-period pro duction function
Variable Factors is not yet achieved
is related to
(d) All of the above (a) Law of variable proportions
(b) Law of returns to scale
73. A Rational Producer will not operate in
(c) Law of diminishing marginal
Stage III due to the reason that—
utility
(a) The Fixed Factor has become over—
(d) None of these
used and inefficient
(b) There is a reduction in Total Output 5. The Law of Returns to Scale deals with
(c) The MP of the Variable Factor is —
negative ( a ) Output Quantities
(d) All of the above ( b) Monetary Values
74. A Rational Producer intends to work in— ( d) Neither (a) nor (b)
(a) Stage of Constant Returns
(b) Stage of Increasing Returns 6. Under the Law of Returns to Scale,
(c) Stage of Diminishing Returns ................................................ is
(d) Stage of Negative Returns constant.
( a ) Output Quantities
75. In which stage of production would a ( b) Quantities of Variable Factors of
rational entrepreneur like to operate? Production
(a) Stage 1 where MP is maximum ( c ) Quantities of Variable and Fixed
(b) Stage 2 where both MP and AP are Factors of Production
decreasing, but both are positive ( d) Proportion between different
(c) Stage 3 where MP is negative Factors of Production
(d) Either Stage 2 or 3
7. Law of Returns to Scale
indicates the
Part D -LAW OF responsiveness of total product when all

inputs
RETURNS TO SCALE ( a ) Remain same

( b) Are changed drastically
( c ) Are changed marginally
1. The Law of Returns to Scale operates in
( d) Are changed proportionately
—
(a) Medium—run 8. Returns to Scale will be said to be in
(b) Short —run operation when quantity of —
(c) Long—run (a) All inputs are changed
(d) All of the above (b) All inputs are changed in already
established proportion
2. The co nce pt 'Retu rn s to scal e ' i s (c) All inputs are not changed
re l ate d with (d) One input is changed while
(a) Very short period quantity of all other inputs
(b) Short period remains the same
(c) Long period 9. Change in Scale means that all
(d) None of the above Factors of Production are increased or
decreased —
3. In the , the quantities of all factors of
(a) In different proportions
production can be increased or
(b) In the same proportion
decreased simultaneously.
(c) To i nfi ni ty
5.29
(d) None of the above on the same equipment. The added volume
helps in lowering average total costs; it may
10. When there is an increase in all
also allow the Firm to employ different types
factors of production together i n
of equipment that have lower variable costs.
the same ratio, —(a) increases at
These factors lead to —
first, (b) becomes constant
(a) Production Economies of Scale
thereafter, and (c) starts decreasing
(b) Economies of Scale
beyond a certain level.
(c) Pecuniary Economies of Scale
( a) Total Product
(d) Technical Economies of Scale
( b) Average Product
(c ) Marginal Product You are given the following data:
( d) All of the above Factor Output
0 0
11. In the initial stages, when there is an 1 15
2 35
increase in scale, there is increase in
3 60
output. 4 92
(a)Zero 5 140
(b) Proportionate
( c ) Less than proportionate 17. The above data is an example of:
(d) More than proportionate (a) Decreasing returns to scale.
(b) Constant returns to scale.
12. In the initial stages, there will be (c) Increasing returns to scale.
increasing returns to scale, due to — (d) Positive fixed costs.
(a) Indivisibility of Factors
18. If as a result of 50% increase in all inputs,
(b) Specialization in Factors
the output rises by 75%, this is a case of:
(a) Increasing Returns to a Factor
(b) Increasing Returns to Scale
13. In the initial stages, there will be (c) Constant Returns to a Factor
increasing returns to scale, due to — (d) Constant Returns to Scale
(a) Economies in operations
19. After the initial stages of increasing
(b) Diseconomies in operations
returns to scale, the Firm will experience —
(a) Still Increasing Returns to Scale
(b) Constant Returns to Scale
14. In the very beginning of production, (c) Diminishing Returns to Scale
generally the (d) None of the above
Increasing Returns to scale is found 20. In which of the following cases does output
because— double with the doubling of all inputs?
( a) Input is increased (a) Constant Returns to Scale
( b) Plant and Machinery will be new (b) Decreasing Returns to Scale
(c ) Production Problems are less (c) Increasing Returns to Scale
( d) Economies of Scale (d) Increasing as well as decreasing
15. In a small scale rubber plant, factors of returns to Scale

production like labour, material and 21. If a change in scale inputs leads to a
capital are increased by 10% and proportional change in the output, it is a case
output increases. It implies that the of—
Firm is experiencing (a) Increasing Returns to Scale
(a) Constant Returns to Scale (b) Constant Returns to Scale
(b) Decreasing Returns to Scale (c) Diminishing Returns to Scale
(c) Increasing Returns to Scale (d) Variable Returns to Scale
(d) Increasing as well as decreasing
You are given the following data:
16. Manufacturers can lower their costs by
producing a variety of different products Factor Total Output
5.30
0 0 (a) Constant returns to scale
1 15 (b) Increasing returns to scale
2 30 (c) Diminishing returns to scale
3 45 (d) Negative returns to scale
4 60 28. In electricity generation plants, when the
5 75 plant grows too large risks of plant failure
22. The above data is an example of: with regard to output increase
(a) Constant Returns to Scale. disproportionately. Hence we are talking
(b) Decreasing Returns to Scale. about which concept of returns to scale?
(c) Increasing Returns to Scale. (a) Constant Returns to Scale
(d) Globalization. (b) Increasing Returns to Scale
(c) Decreasing Returns to Scale
23. If one unit of labour and one unit of capital (d) Balanced Returns to Scale
give 200 units of output, two units of labour 29. Linear Homogeneous Production function is
and two units of capital give 400 units of based on
output and 5 units of labour and five units (a) Increasing Returns to Scale
of capital give 1000 units of output then this (b) Decreasing Returns to Scale
is a case of: (c) Constant Returns to Scale
(a) Constant Returns to Scale. (d) No ne .
(b) Increasing Returns to Scale.
30. Beyond a certain extent, the Firm will
(c) Decreasing Returns to Scale.
start
(d) All of these.
experiencing decreasing returns to scale, due to
24. After the stages of constant returns to (a) Economies in operations
scale, the Firm will start experiencing — (b) Diseconomies in operations
(a) Still Increasing Returns to Scale (c) Both (a) and (b)
(b) Constant Returns to Scale (d) Neither (a) nor (b)
(c) Diminishing Returns to Scale 31. Problems like managerial difficulties, low
(d) None of the above employee morale, higher input prices, etc.
arising out of large scale operations lead to—
25. If Decreasing Returns to Scale are present,
(a) Large Economies of Scale
then if all inputs are increased by 10% then
(b) Pecuniary Economies of Scale
(a) Output will also decrease by 10%
(c) Real Economies of Scale
(b) Output will increase by 10%
(d) Diseconomies of Scale
(c) Output will increase by less than
10% 32. Diseconomies of Scale refer to —
(d) Output will increase by more than (a) Forces which reduce the Average Cost
10% of producing a product as the Firm
26. Wich a view to increase his production Hari expands the Size of its Plant
Haran a manufacturer of shoes, increases (b) Forces which reduce the Marginal
all the factors of production in his unit by Cost of producing a product as the Firm
100%. But at the end of year he finds that expands the Size of its Plant
instead of an increase of 100%, his (c) Forces which increase the Average Cost
production has increased by only 80%. of producing a product as the Firm

Which law of returns to scale is operating expands the Size of its Plant
in this c a s e (d) Forces which increase the Marginal
(a) Increasing returns to scale Cost of producing a product as the Firm

(b) Decreasing returns to scale the Size of its Plant
(c) Constant returns to scale
33. Economies and Diseconomies in operations
can be
27. If all inputs are trebled and the resultant
output is doubled, this is a case of: (a) I n te r n a l .
5.31
(b) External specialized equipment and modern
( c ) Both (a) and (b) techniques of production.
( d ) Neither (a) nor (b) (a) Marketing
(b) Selling
34. Internal Economies and Diseconomies
(c) Managerial
are dependent on —
(d) Production
(a) Output level of individual Firms
(b) Output level of the entire industry 42. Which of the following is an important
(c) Both (a) and (b) ingredient of Selling Economies?
(d) Neither (a) nor (b) (a) Advertising Economies
(b) Inventory Economies
35. Internal Economies and Diseconomies arise
(c) Transportation Economies
due to
(d) Storage Economies
(a) Overall industry—level changes
(b) Changes at the Firm level 43. economies are associated with the
(c) Both (a) and (b) distribution of the product of a Firm.
(d) Neither (a) nor (b) (a) Manufacturing
(b) Inventory
36. External Economies and Diseconomies
(c) Production
are dependent on —
(d) Selling
(a) Output level of individual Firms
(b) Output level of the entire industry 44. Which of the following is not a type of
(c) Both (a) and (b) pecuniary Economies of Scale?
(d) Neither (a) nor (b) (a) Reduction in prices of raw materials,
as a result of discounts due to large
37. External Economies and Diseconomies arise volumes from the Suppliers
due toOverall industry—level changes (b) Lower costs of external finance as banks
(a) Changes at the Firm level often offer loans to large Firms at a
(b) Both (a) and (b) lower rate of interest
(c) Neither (a) nor (b) (c) Lower advertising rates for large Firms if
they advertise at large scales
38. External economies can be achieved
(d) Economies achieved by increasing the
through—
scale of output mainly due to division of
(a) Foreign trade only labour
(b) Extension of transport & transport
45. Difficulties of management, co—ordination
credit* facility
and control due to bigger Plant Size is an
(c) Superior managerial skills
example of —
(d) External assistance
(a) Internal Economies of Scale
39. External Diseconomies may lead to _____ (b) Internal Diseconomies of Scale
(a) Decrease in cost of technology (c) External Economies of Scale
(b) External Assistance (d) External Diseconomies of Scale
(c) Increase in the price of factors of
46. Availability of cheaper Raw Materials and
production
Capital Equipment in the long—run constitutes
—
40. Inventory Economies are a part of which of (a) Internal Economies of Scale
the following type of economies of scale? (b) Internal Diseconomies of Scale

(c) External Economies of Scale
(a) Production
(d) External Diseconomies of Scale
(b) Selling
(c) Labour
47. Increase in Prices of Factors of Production due
(d) Storage and Transport
to expansion in industry creates —
41. economies result from the use of
(b) Internal Diseconomies of Scale
5.32
(c) External Economies of Scale (d) All of the above
55. Internal and External Economiesand
48. Discovery of new technical knowledge Diseconomies of Scale has its impact on —
and improvements in technology leads to — (a) Long Run Average Cost (LAC) Curve
(a) Internal Economies of Scale (b) Short Run Average Cost (SAC) Curve
(b) Internal Diseconomies of Scale (c) Both (a) and (b)
(c) External Economies of Scale (d) Neither (a) nor (b)
56. Due to External Economies of Scale, the Long
49. Management Efficiency and Productivity due Run Average Cost (LAC) Curve —
to creation of different specialised (a) Shifts inward
functional departments is an example of — (b) Remains constant
(a) Internal Economies of Scale (c) Shifts outward
(b) Internal Diseconomies of Scale (d) Is not affected at all
57. Due to External Diseconomies of Scale, the
Long Run Average Cost (LAC) Curve —
(a) Shifts inward
50. Growth of Ancillary Industries supplying
(b) Remains constant
related goods and services is an example of —
(c) Shifts outward
(d) Is not affected at all
(c) External Economies of Scale 58. If the LAC curve falls as output expands,
(d) External Diseconomies of Scale this is due to —
(a) Law of Diminishing Returns
51. Delays in internal communication due to
(b) Economies of Scale
complex management structure is an example
(c) Law of Variable Proportions
of —
(d) Diseconomies of Scale
(b) Internal Diseconomies of Scale 59. Identify the correct statement
(c) External Economies of Scale (a) Average Product is at its maximum
(d) External Diseconomies of Scale when Marginal Product is equal to
Average Product
52. A large Firm can offer better security to Bankers
(b) Law of Increasing Returns to Scale
and obtain credit easily. This createsfor such Firm.
relates to the effect of changes in
factor proportions
(c) Economies of Scale arise only
because of invisibilities of factor
proportions
53. When a large Firm makes bulk purchase
(d) Internal Economies of scale can
and obtains its Raw Materials at lower prices
accrue only to the exporting sector
than a small size Firm, the large Firm is said
to have achieved —
54. Internal Economies of Scale can arise in

__________
aspects.
(a) Technological
(b) Managerial
(c) Financial
5.33
Answers to MCQs PART- A
Answers to MCQs PART- B
Answers to MCQs PART- C
5.34
5.35
5.36
Cost and Revenue concept
8. A Cost Function deals with —
COST ANALYSIS AND COST FUNCTION (a) Total Cost
1. Cost Analysis is the study of behaviour (b) Cost per unit
of__________________in relation to one or more (c) Either (a) or (b)
production criteria. (d) Neither (a) nor (b)
(a) Prices and Revenue 9. In a Cost Function, the Total Cost or Cost
(b) P rof i ts per unit is a/an —
(c) C o s ts (a) Dependent Variable
(d) Output Quantity (b) Independent Variable
(c) Either (a) or (b)
2. Cost Analysis is the study of behaviour of (d) Neither (a) nor (b)
Cost, in relation to —
(a) Selling Prices
10. In a Cost Function, the Output Quantity is
(b) P rof i ts
a/an-
(a) Dependent Variable
(c) Total Revenue
(b) Independent Variable
(d) One or more Production Criteria
3. For Cost Analysis purposes, the Production (d) Neither (a) nor (b)
Criteria may be —
(a) Quantity of output
11. In a Cost Function, the Scale of Operations is
(b) Scale of operations
a/an-
(c) Prices of factors of production
4. For Cost Analysis purposes, the Production (d) Neither (a) nor (b)
Criteria may be —
(a) Prices of factors of production
12. In a Cost Function, the Price of Factors of
(b) Quantity of output
Production is a/an-
5. Cost Analysis is concerned with ......... of (d) Neither (a) nor (b)
production.
(a) Financial aspects
13. Identify the Dependent Variable in a Cost
(b) Physical aspects
Function from the following.
(a) Quantity of Output
(b) Scale of Operations
(c) Total Cost
6. Production Analysis is concerned with (d) Price of Factors of Production
......................................................... of
production. 14. Identify the Dependent Variable in a Cost
(a) Financial aspects
(a) Efficiency
(b) Physical aspects
(b) Level of Capacity utilisation
(c) Technology
(d) Cost per unit
7. Cost Function refers to the mathematical
15. Identify the Independent Variable in a Cost
relationship between cost of a product
and the various determinants of Cost. This
(a) Time Period under study
statement is
(b) Cost per unit
(a) True
(c) Total Cost
(b) False
© Aditya Sharma Page 1

16. Cost Functions are Derived Functions. (c) Inputs are chosen for producing a
They are derived from — desired level of output
(a) Demand Function (d) All the inputs in the long—run are
(b) Supply Function fixed
(c) Isoquant Function
(d) Production Function 23. Expansion of Scale of operation forms a
part of
17. A Cost Function determines the behaviour of ...... Cost Function.
Costs with change in — (a) Long run
(a ) Output (b) Short run
(b ) I np u t (c) Fi x e d
(c) Technology (d) Both (b) and (c)
(d) Wages
18. The Cost Function indicates the regarding Short and Long Run Cost
functional relationship between Total Cost Functions is not true?
and — (a) A Variable Input varies according to the
(a) Total Input quantity of output to be produced
(b) Fixed Cost (b) In the Short Run, one or more of the
(c) Total Output inputs of the production process is
(d) Variable Cost fixed
(c) In the Long Run, all the inputs are
19. Which of the following is not a determinant fixed
of the Firm's Cost Function? (d) In the Long Run there are no restrictions
(a) Production Function on the resource allocation in the
(b) Price of Labour production process.
(c) Rent paid for use of Building 25. Which theory proposes that a country
(d) Price of the Firm's Output could be better off by producing the
product in which it has relatively lower
20. The Functional Relationship between Output Labour Cost and relatively higher Labour
and the Long Run Cost of Production is productivity?
known as — (a) Absolute Advantage Theory
(a) Cost Function (b) Relative Advantage Theory
(b) Long Run Cost Function (c) Comparative Advantage Theory
(c) Short Run Cost Function (d) Imitation Theory
(d) Output Function
26. A Product can be produced using two
21. The Functional Relationship between Output input combinations A and B. Combination
and the Short Run Cost of Production is A takes 2 units of Labour and 8 units of
known as — Capital. Combination B takes 3 units of
(a) Cost Function Labour and 5 units of Capital, what is the
(b) Long Run Cost Function Marginal Rate of Technical Substitution
(c) Short Run Cost Function of Labour for Capital?
(d) Output Function (a) 0
(b) 2
22. Which of the following statements (c) 3
regarding the Long Run Cost Function is not (d) 5
true?
(a) The Firm adjusts Factors of Production
to meet the market demand
(b) Firms identify a combination that
gives maximum output at the lowest
Cost EXPLICIT AND IMPLICIT COSTS

27. Costs which involve payment made by (b) Opportunity Costs
the Entrepreneur to providers of other (c) Notional Costs
factors of production are called — (d) Explicit Costs
(a) Explicit Cost
(b) Implicit Cost 35. Explicit Costs are used for purposes.
(c) Variable Cost (a) Accounting and Reporting
(d) Fixed Cost (b) Cost Control
(c) Decision Making
28. The Cost that a Firm incurs in hiring or (d) All of the above
purchasing any Factor of Production is
referred to as — 36. Costs which do not involve any cash
(a) Explicit Cost payment to outsiders are called —
(b) Implicit Cost (a) Explicit Cost
(c) Variable Cost (b) Implicit Cost
(d) Fixed Cost (c) Variable Cost
(d) Fixed Cost
29 .. can be defined as the Cost that involve 37. ..... are the value of foregone opportunities
actual payment to other parties. that
(a) Implicit Costs do not involve any physical cash payment.
(b) Explicit Costs (a) Implicit Costs
(c) Hidden Costs (b) Explicit Costs
(d) Opportunity Costs (c) Hidden Costs
(d) Actual Costs
30. Which of the following is an example of an
'Explicit Cost"? 38. An Implicit Cost can be defined as the—
(a) Wages a Proprietor could have made by (a) Payment to the non—owners of the Firm
working as an employee of a large Firm for the resources they supply
(b) Income that could have been earned (b) Money payment which the self—
in alternative uses by the resources employed resources could have
owned by the Firm earned in their best alternative
(c) Payment of Wages by the Firm employment
(d) Normal Profit earned by a Firm (c) Costs which the Firm incurs but
does not disclose
31. Explicit Costs are also known as — (d) Costs which do not change over a
(a) Out—of—Pocket Costs period of time
(b) Outlay Costs
(c) Accounting Costs 39. Which of the following is an example of an
(d) All of the above "Implicit Cost"?
32. Which of the following does not relate to (a) Interest that could have been
Explicit Costs? earned on retained earnings used by
(a) Out—of—Pocket Costs the Firm to finance expansion
(b) Outlay Costs (b) Payment of Rent by the Firm for the
(c) Opportunity Costs building in which it is housed
(d) Accounting Costs (c) Interest Payment made by the Firm for
funds borrowed from a Bank
33. are actually incurred and hence can be (d) Payment of Wages by the Firm
easily and objectively measured. 40. Implicit Costs are also known as —
(a) Implicit Costs (a) Notional Costs
(b) Explicit Costs (b) Opportunity Costs
(c) Hidden Costs (c) Imputed Costs
(d) Opportunity Costs (d) All of the above
34. Which of the following Costs is included
and recorded in the books of accounts? 41. Which of the following does not relate to
(a) Imputed Costs Implicit Costs?

(a) Notional Costs (b) Manufacturing Costs
(b) Out—of—Pocket Costs (c) Taxes
(c) Imputed Costs (d) Implicit Costs
(d) Opportunity Costs 48. Which of the following Costs does not
include the contractual cash payments
42 involve subjective estimation. which the Firm makes to other Factor
(a) Implicit Costs Owners for purchasing or hiring various
(b) Outlay Costs factors?
(c) Out—of—Pocket Costs ( a) Private Costs
(d) Accounting Costs ( b) Variable Costs
(c) Accounting Costs
43. An entrepreneur who manages his Firm ( d) Implicit Costs
has to forego his salary, which he could have
earned if he had worked elsewhere. The 49. Implicit Costs are used for purposes.
foregone Cost is known as— (a) Accounting and Reporting
(a) Implicit Costs (b) Cost Control
(b) Explicit Costs (c) Decision Making
(c) Hidden Costs (d) All of the above
(d) Actual Costs
50. If Rent is paid to the Landlord
44. Implicit Costs includes — separately, it is an
(a) Interest on own Capital invested ( a) Implicit Cost
by ( b) Explicit Cost
Entrepreneur (c) Hidden Cost
(b) Rent of Entrepreneur's own premises ( d) Undisclosed Cost
used in business
51. If Land is owned by the Entrepreneur,
(c) Salary to Entrepreneur he would have
Rent is an
earned in an alternative employment ( a ) Implicit Cost
( b ) Explicit Cost
45. Which of the following is an Implicit Cost? ( c ) Hidden Cost
(a) Wages paid to Workers / Labourers ( d ) Undisclosed Cost
(b) Rent for Land and Building used in
52. Salary / Wages paid to Employees /
business
Workers is an —
(c) Normal Rate of Profit in the business
( a) Implicit Cost
( b) Explicit Cost
46. Which of the following is an Implicit Cost? (c) Hidden Cost
(a) Land owned by Entrepreneur and ( d) Undisclosed Cost
used for business purposes, on which no
53. If own people (e.g. family members)
Rent is paid.
are employed in the Firm, without
(b) Wages or Salary not paid to the
paying them any reward for their
Entrepreneur, but could have been
work, Labour Cost is an —
earned if his services had been sold
( a) Implicit Cost
somewhere else, i.e. if he were
( b) Explicit Cost
employed in another Firm.
(c) Hidden Cost
(c) Normal Return on Money Capital
( d) Undisclosed Cost
invested by Entrepreneur himself in his
own business. 54. If Capital is borrowed and used in
the business, Interest on Capital is —
( a) Implicit Cost
47. Which of the following Costs is not included
( b) Explicit Cost
in the books of accounts?
(c) Hidden Cost
(a) Explicit Costs
( d) Undisclosed Cost

55. If Entrepreneur employs his own funds (a) Interest paid to Bank on short—term
as Capital, then Interest is —
( a ) Implicit Cost loan taken
( b ) Explicit Cost *
( c ) Hidden Cost
( d ) Undisclosed Cost (b) Cost incurred on the purchase of
raw materials
56. When Entrepreneur himself manages (c) Wages paid to Labourers
the business, the reward for (d) All the above
Entrepreneurial Ability (i.e. Profit) is an
— 63. Expenditure incurred on Wages, Rent,
( a) Implicit Cost Interest, etc. are included in—
( b) Explicit Cost (a) Accounting Cost
(c) Hidden Cost (b) Opportunity Cost
( d) Undisclosed Cost 57. Reward for (c) Fi x e d Co s t
Entrepreneurial Ability (i.e. Normal (d) D ir ec t Co st
Profit in the business) is included in —
64. Economic Cost equals —
(a) Implicit Cost ( a) Explicit Cost
(b) Explicit Cost ( b) Implicit Cost
( c ) Hidden Cost (c) Both (a) and (b)
(d) Undisclosed Cost ( d) Neither (a) nor (b)
58. Direct costs are __ 65. Economic Cost includes—
(a) Traceable costs (a) Accounting Cost + Non—
(b) Indirect costs Accounting Cost
(c) Implicit costs (b) Fixed Cost + Variable Cost
(d) Explicit costs (c) Explicit Cost + Implicit Cost
(d) Short Run Cost + Long Run
59. Suppose the total cost of production of
Cost
a commodity X is 1,25,000 out of which 66. Economic Cost includes—
implicit cost 35,000 and normal profit is (a) Accounting Cost + Explicit Cost
25,000. What would be the explicit cost (b) Accounting Cost + Implicit Cost
of commodity? (c) Fixed Cost + Variable Cost
(a) 90,000 (d) Accounting Cost + Non—Accounting
(b) 65,000 Cost
(c) 1,00,000
(d) 60,000 67. Economic Cost includes —
(a) Wages paid to Workers / Labourers
ACCOUNTING COSTS AND ECONOMIC COSTS
(b) Rent for Land and Building used in
60. Accounting Cost equals — business
( a) Explicit Cost (c) Normal Rate of Profit in the
( b) Implicit Cost business
(c) Both (a) and (b) (d) All of the above
68. Which of the following are considered as
61. Cost incurred in purchasing the Factor Economic Cost?
of Production is known as — (a) Normal Return on money Capital
(a) Accounting Cost invested
(b) Economic Cost (b) Wages or Salary of the Entrepreneur
(c) Marginal Cost (c) Interest on the Capital invested
(d) Implicit Cost (d) All of the above
62. Which of the following is an
69 . includes all payments paid to Factors of
example of an Accounting Cost?
Production and Opportunity Cost.

(a) Implicit Costs 76. When Total Revenue is less than Accounting
(b) Explicit Costs Costs, it means that the Firm incurs Losses
(c) Economic Costs —
(d) Accounting Costs (a) In the accounting sense
(b) In the economic sense
70. Reward for Entrepreneurial Ability (i.e. (c) Both (a) and (b)
Normal Profit in the business) is included in (d) Neither (a) nor (b)
—
(a) Economic Cost 77. When Total Revenue equals Economic
(b) Accounting Cost Costs, it means that the Firm —
(c) Explicit Cost (a) Has No—Profit—No—Loss
(d) Undisclosed Cost (b) Earns Normal Profits
(c) Earns more than Normal Profits (i.e.
71. Which of the following is true regarding Super—Normal Profits)
Economic Cost and Accounting Cost? (d) Incurs Losses in the accounting
(a) Economic Cost = Accounting Cost sense
(b) Economic Cost > Accounting Cost
(c) Economic Cost < Accounting Cost 78. When Total Revenue exceeds Economic
(d) None of the above Costs it means that the Firm —
(a) Has No—Profit—No—Loss
72. The difference between Economic Cost (b) Earns Normal Profits
and Accounting Cost is equal to — (c) Earns more than Normal Profits (i.e.
(a) Explicit Cost Super—Normal Profits)
(b) Implicit Cost (d) Incurs Losses
(d) Neither (a) nor (b) 79. When Total Revenue is less than Economic
Costs, it means that the Firm —
73. Which of the following is true regarding (a) Incurs Losses in the economic
Economic Cost and Accounting Cost? sense
(a) Economic Cost less Accounting Cost = (b) Earns Normal Profits
Explicit Cost (c) Earns more than Normal Profits (i.e.
(b) Economic Cost less Accounting Cost = Super—Normal Profits)
Implicit Cost (d) Incurs Losses in the accounting
(c) Accounting Cost less Economic Cost = sense
Explicit Cost
(d) Accounting Cost less Economic Cost = 80. Economic Profits are —
Implicit Cost (a) Difference between Total Revenue, and
Total Implicit and Explicit Costs
74. When Total Revenue equals Accounting (b) Difference between Total Revenue and
Costs, it means that the Firm — Total Economic Costs
(a) Has No—Profit—No—Loss (c) Zero in a perfectly competitive industry
(b) Earns Normal Profits in the long—run
(c) Earns more than Normal Profits (i.e. (d) All the above
Super—Normal Profits) 81. If there are Implicit Costs of Production —
(d) Incurs Losses in the accounting sense (a) Economic Profit will be equal to
Accounting Profit.
75. When Total Revenue is less than Accounting
(b) Economic Profit will be less than
Costs, it means that the Firm —
Accounting Profit.
(a) Has No—Profit—No—Loss
(c) Economic Profits will be zero.
(b) Earns Normal Profits
(d) Economic Profit will be more than
(c) Earns more than Normal Profits (i.e.
Accounting Profit.
Super—Normal Profits)
(d) Incurs Losses
82. Which of the following statements is false?

(a) Economic Costs include the Opportunity 89. If a resource can be put only to a
Costs of the resources owned by the Firm particular use, then, Opportunity Costs —
(b) Accounting Costs include only Explicit (a) Are applicable and quantifiable
Costs (b) Are applicable but not quantifiable
(c) Economic Profit will always be less (c) Are not applicable at all
than Accounting Profit if resources (d) None of the above
owned and used by the Firm have any
90. Opportunity Costs —
Opportunity Costs
(a) Involve cash payment
(d) Accounting Profit is equal to Total Revenue
(b) Do not involve any cash payment
less Implicit Costs
Both (a) and (b)
OPPORTUNITY COSTS (c) Neither (a) nor (b)
83. Opportunity Cost refers to ... in accepting 91. Outlay Costs—
an alternative course of action. (a) Involve cash payment
(a) Value of sacrifice made (b) Do not involve any cash payment
(b) Benefit of opportunity foregone (c) Both (a) and (b)
(c) Both (a) and (b) (d) Neither (a) nor (b)
92. Opportunity Cost is —
84. Opportunity Cost refers to — (a) Recorded in books of accounts
(a) Cost of opportunity foregone (b) Not recorded in books of accounts
(b) Comparison between the policy that was (c) Sometimes (a) sometimes (b)
chosen and the policy that was rejected (d) Neither (a) nor (b)
(c) Costs relating to sacrificed alternatives
(d) All of the above 93. Opportunity Costs are used for purposes
(a) Accounting and Reporting
85. The Cost of one thing in terms of the (b) Cost Control
alternative given up is known as — (c) Decision Making
(a) Production Cost (d) All of the above
(b) Physical Cost
(c) Real Cost 94. Which of the following is not true with
(d) Opportunity Cost reference to Opportunity Cost?
(a) It is the value of the next best use
86. Opportunity Costs are a result of — for an economic good
(a) Technology obsolescence (b) It is the value of a sacrificed
(b) Overproduction alternative
(c) Scarcity (c) It is useful in decision—making
(d) Abundance of resources (d) It does not take into consideration, the
cost of time
87. Opportunity Costs arise only when resources
are — 95. Which of the following is/are true?
(a ) Scarce (a) Total Cost includes only Variable
(b ) Restricted in availability Costs
(c ) Available only to a limited extent (b) Opportunity Cost is the value of the
(d ) All of the above good of service forgone
(c) Economic Costs include only Out—
88. Opportunity Cost arises only when of—Pocket Costs
alternatives are available. This statement is — (d) Both (a) and (c) above
(a ) True
( b) False 96. A Manager needs a Stenographer and a Clerk
( c ) Partially True for the Accounts Department. But, due
( d ) None of the above to financial constraints, he can able to
recruit only one i.e. either Stenographer or

Clerk. Finally he decides to recruit the (b) Opportunity Cost plus Accounting Cost
Stenographer and had to give up the idea of equals Economic Cost.
having an Additional Clerk in the (c) When a Firm's Demand Curve slopes
Accounts Department. Here, the Cost of not down, Marginal Revenue will rise as
hiring an accounts clerk is known as — output rises.
(a) Accounting Cost (d) Firms increase profits by selling more
(b) Cost Possibility Curve output than their rivals.
(c) Opportunity Cost
(d) Substitution Effect 103.Suppose you find 100. If you choose to
use 100 to go to a football match, your
97. Cost is the Total Additional Cost that a Firm opportunity cost of g o i n g t o t h e
has to incur, as a result of implementing a game is
major managerial decision. (a) nothing, because you found the
( a ) Su nk money.
( b ) Incremental (b) Only The value of your time spent at the
( c ) Opportunity game + The Expected Normal Interest /
( d ) Marginal Return on 100.
(c) 100 (because you could have used the
98. Incremental Cost equals —
100
(a) Additional Variable Costs only
to buy other things) plus the value of
(b) Additional Fixed Costs only
your time spent at the game, plus the
cost of the dinner you purchased at the
game.
99. Which of the following statement is true? (d) 100 (because you could have used the
(a) Marginal Cost is a sub—set of 100
Incremental Cost to buy other things).
(b) Incremental Cost is sub—set of
Marginal Cost 104. .are readily identified and are traceable to a
(c) Marginal Cost is a sub—set of Sunk
particular product, service, operation or
Cost plant.
(a) Direct Costs
(d) Sunk Cost is a sub—set of
(b) Indirect Costs
Incremental Cost 100Cost is not relevant for
Decision—Making
(a) Economic
(b) Opportunity 105.are not readily identified nor visibly
(c) Su nk traceable to specific goods, services, operations,
(d) Incremental Cost etc.
(a) Direct Costs
101.Which of the following statement best (b) Indirect Costs
describes Sunk Costs? (c) Both (a) and (b)
(a) Costs which are incurred in the past (d) Neither (a) nor (b)
(b) Cost incurred by the Firm as 106.Accounting Process recognizes —
result of bankruptcy of one of its (a) Direct Costs
Creditors (b) Indirect Costs
(c) Cost incurred by the Firm as a result of (c) Both (a) and (b)
the fire that broke into one of the Firm's (d) Neither (a) nor (b)
Godown.
(d) Setting off the losses that the Firm Read the following paragraph and answer
incurred in the previous years the following four questions.
Nicole owns a small pottery factory. She can
102.Which of the following is correct? make 1,000 pieces of pottery per year and sell
(a) Firms that earn Accounting Profits them for 100 each. It costs Nicole 20,000 for
are economically profitable. the raw materials to produce the 1,000 pieces

of pottery. She has invested 100,000 in her (d) Neither (a) nor (b)
factory and equipment: 50,000 from her savings
and 50,000 borrowed at 10 per cent. (Assume 115.Cost must be paid even if the Firm's level
that she could have loaned her money out at 10 output is zero.
per cent, too.) Nicole can work at a competing (a) Variable
pottery factory for 40,000 per year. (b) Direct
107.The accounting cost at Nicole's pottery (c) Incremental
factory is (d) Fixed
(a) 2500
(b) 5000 116. If a Firm produces zero output in the short
0
(c) 8000
0 period —
(d) 7500
0 (a) Its Total Cost will be zero
0 (b) Its Variable Cost will be positive
108.The economic cost at Nicole's factory is: (c) Its Fixed Cost will be positive
(a) 75000 (d) Its Average Cost will be zero -
(b) 70000
(c) 80000 117...........Cost will be incurred even when the
(d) 7 30000 Firm's
109.The accounting profit at Nicole's pottery produces Nil output.
(a) 30000 factory is: (a) Variable
(b) 50000 (b) Fixed
(c) 80000 (c) Both (a) and (b)
(d) 75000 (d) Neither (a) nor (b)
118.As output increases, Total Fixed Cost —
110.The economic profit at Nicole's factory is:
(a) Decreases
(a) fi 75000
(b) Increases
(b) 3 5 0 0 0
(c) fi 80000
(d) Becomes zero
(d) 3 0 0 0 0
119.Some portion of Fixed Costs need not be
FIXED AND VARIABLE COSTS
incurred when operations are suspended.
111. are costs that do not vary with output, These are called —
(a) Avoidable Fixed Costs
upto a certain level of activity.
(b) Committed Fixed Costs
(a) Variable
(c) Variable Costs
(b) Fi x e d
(d) Semi—Variable Costs
120. Some portion of Fixed Costs cannot be
112. Fixed Cost can be defined as — avoided even when operations are
(a) Which does not change with output
suspended. These are called —
(a) Discretionary Fixed Costs
(b) Which changes with Sales
(b) Committed Fixed Costs
(c) Which changes proportionately with
(c) Variable Costs
output
(d) Semi—Variable Costs
113. Fixed Costs are — 121.Which of the following is not a Fixed Cost?
(a) Period—related (a) Payment of Interest on Borrowed Capital
(b) Product—related (b) Charges for Fuel and Electricity
(c) Both (a) and (b) (c) Depreciation Charges on
(d) Neither (a) nor (b) Equipment and Buildings
(d) Contractual Rent for Equipment of
114. Fixed cost Costs are a function of —
(a) Output
Building
(b) Time
122.0f the following which one corresponds to
Fixed Cost?

(a) Payments for Raw Material 129.All Variable Costs are avoidable or
(b) Labour Costs discretionary in nature. This statement is —
(c) Transportation Charges (a) True
(d) Insurance Premium on Property (b) False
(c) Partially True
123.The following are some Costs incurred by a (d) Nothing can be said
Clothing Manufacturer. State which among
them will be considered as Fixed Cost. 130.As output increases, Total Variable Cost —
a) Cost of Cloth (a) Decreases
b) Piece Wages paid to Workers (b) Increases
c) Depreciation on Machines owing to time (c) Remains constant
d) Cost of Electricity for running machines (d) Becomes zero
131.Which Cost increases continuously with

the increase in production?
(a) Average Cost
(b) Marginal Cost
(c) Fixed Cost
(d) Variable Cost
124..........are costs that change, based on the 131.Which Cost increases continuously with
level of output. the increase in production?
(a) Variable (a) Average Cost
(b) Fixed (b) Marginal Cost
(c) Both (a) and (b) (c) Fixed Cost
(d) Neither (a) nor (b) (d) Variable Cost
125.Variable Costs are — 132.Total Variable Costs always vary

(a) Period—related proportionately with output. This statement
(b) Product—related is —
(c) Both (a) and (b) (a) True
(d) Neither (a) nor (b) (b) False
126.Variable Costs are a function of —* (d) Nothing can be said
(a) Output
(b) Time 133.Over certain ranges of production Variable
(c) Both (a) and (b) Costs vary less or more than proportionately
(d) Neither (a) nor (b) depending on the utilisation of fixed facilities
and resources during the production
127......Cost must be incurred only when the process. This statement is —
Firm's (a) True
produces output. (b) False
(a) Variable ( c ) Partially True
(b) Fixed (d) Nothing can be said
(d) Neither (a) nor (b) 134.Variable Cost includes the Cost of —
(a) Buying Land and Building
128. Variable Costs are incurred only when (b) Hire Charges paid for the Machinery
production takes place. So, they are in the nature (c) Salary to Manager
of — (d) Material Bought
(a) Discretionary Costs
(b) Committed Costs 135.Which of the following is an example of
(c) Fixed Costs Variable Cost in the short run?
(d) Semi—Variable Costs (a) Cost of Equipment
(b) Interest Payment on past borrowings

(c) Payment of Rent on Building (a) True
(d) Cost of Raw Materials (b) False
MARGINAL COSTS (d) Nothing can be said
136. Marginal Cost changes due to change inCost 143.Which of the following will affect Marginal
(a) Variable Costs?
(b) Fi x e d (a) Variable Costs
(c) To t a l (b) Output Quantity
(d) Average (c) Both (a) and (b)
137............. is the addition made to the total
cost by production of an additional unit of 144.Which of the following will not affect
output. Marginal Costs?
(a) Fixed Cost (a) Variable Costs
(b) Variable Costs (b) Output Quantity
(c) Total Costs (c) Fixed Costs
(d) Marginal Costs (d) All of the above
138. Marginal Cost can be defined as — 145.TCn TCn_i = which cost function?
(a) Change in Average Variable Cost (a) Marginal Cost
divided by Change in Total Output (b) Average Cost
(b) Change in Average Fixed Cost divided (c) Total Cost
by Change in Total Output (d) None of the above
(c) Change in Total Fixed Cost divided by
Change in Total Output 146. Marginal Costs per unit =
(d) Change in Total Cost due to Change in (a) Change in Total Costs ÷ Change in
Total Output by one additional unit. Output Quantity
(b) Change in Variable Costs ÷ Change in
139...............Costs are important in short term Output Quantity
decision (c) Either (a) or (b)
making of the Firm, to determine the (d) Neither (a) nor (b)
output at which profits can be maximized.
( a ) Fi x e d 147.Which of the following describes the
( b ) Su nk behaviour of Marginal Cost Curve?
( c ) Opportunity (a) Declines first, reaches its minimum
( d ) Marginal and then rises
(b) Rises first, reaches a maximum and
then declines
140.With which of the following is the
(c) Remains constant throughout all
concept of Marginal Cost closely related?
output levels
(a) Variable Cost (d) Nothing can be said
(b) Fixed Cost
(c) Opportunity Cost 148.Marginal Cost Curve of a Firm will be —
(d) Economic Cost (a) L Shaped
(b) 3 Shaped
141.Marginal Cost is independent of Fixed Cost. (c) U Shaped
This statement is — (d) Inverted U Shaped
(a) True
(b) False 149.Marginal Cost Curve of a Firm will
( c ) Partially True show .......................................................
(d) Nothing can be said behaviour when compared to Marginal
Product (MP) Curve.
142.Marginal Cost is independent of Variable
(a ) Same
Cost. This statement is —

(b ) Reverse Replacement Costs higher than
(c ) Either (a) or (b) Historical Cost.
(d ) Nothing can be said (b) A decrease in price will make
Replacement Costs higher than
150. Marginal Costs are applicable in —
Historical Cost.
(a) Short—Run
(c) An increase in price will make
(b) Long—Run Replacement Costs lower than
(c) Both (a) and (b) Historical Cost.
(d) Neither (a) nor (b) (d) None of the above
155.Additional cost incurred by a Firm as a
result of a business decision — 158,The cost incurred during the acquisition
(a) Sunk Cost of an asset
(b) Replacement Cost (a) Sunk Cost
(c) Incremental Cost (b) Replacement cost
(d) Extra Cost (c) Historical cost
156.Costs which are already incurred once
and for all, and cannot be recovered. 159. Cost of Production incurred by an
(a) Historical cost
Individual firm is —
(b) Sunk Cost (a) Private Cost
(c) Private Cost (b) Social Cost
(d) None of the above (c) Production Cost
160. Socia I Cost =

(a) Explicit Cost + Implicit Cost
(b) Private Cost + External Cost
(c) Private Cost + Internal Cost
157.Which of the following statement is correct? (d) None of the above
(a) An increase in price will make

(c) TC = TVC — TFC
Short run and long Run cost concept (d) TC = TFC+ TVC
6. TFC Curve will be a —
1. Which of the following statements (a) Curve
regarding Output is false? (b) Straight Line
(a) Output is under the control of the (c) Rectangular Hyperbola
Firm (d) None of these
(b) Magnitude of the Output
determines the Total Cost of 7. TFC Curve will be a straight line
Production (a) Parallel to X—Axis
(c) Change in output level determines (b) Parallel to Y—Axis
the rate of change in the Total Cost (c) Increasing from left to right
of Production (d) Decreasing from left to right
(d) Output has no role to play in
8. TFC Curve will commence from —
determining the Cost Function
(a) A certain point on the Quantity
2. If Output increases in the short—run, Axis (X Axis)
Total Cost will — (b) A certain point on the Cost Axis
(a) Increase due to an increase in Fixed (Y Axis)
Costs only (c) O r i g i n
(b) Increase due to an increase in (d) Any of the above
Variable Costs only 9. TVC Curve will be a —
(c) Increase due to an increase in both (a) Curve with a positive slope
Fixed and Variable Costs (b) Curve with a negative slope
(d) Decrease if the Firm is in the (c) Ei ther (a) or (b)
region of Diminishing Returns (d) Neither (a) nor (b)
3. If the Firm's output level is below its 10. NC Curve will —

short run capacity, it is its Plant and (a) Increase, i.e. slope upward from
Machinery. left to right
(a) Under utilizing (b) Decrease, i.e. slope downward
(b) Fully utilizing from left to right
(c) Over utilizing (c) Ei ther (a) or (b)
(d) Ex plo i ti ng (d) Neither (a) nor (b)
4. Which of the following statements 11. NC Curve will commence from —

is correct concerning the relationships (a) A certain point on the Quantity
among the Firm's Costs? is (X Axis)
( a ) TC = TFC — TVC
(b) A certain point on the Cost Axis
(b) T V C = T F C T C
(Y Axis)
(c) TFC = TC TVC (c) O r i g i n
( d ) T C = TV C T F C (d) Any of the above

12. TVC Curve will be —
is correct concerning the relationships
(a) Higher than the TC Curve
among the Firm's Costs?
(b) Lower than the TC Curve
(a) TC = TVC X TFC
(c) Parallel to X Axis
(b) TC = TFC — TVC

(d) Parallel to Y Axis attempting to maximize profits or
minimize losses, his behaviour in the
13. If Variable Cost per unit (i.e. AVC) is short run is:
constant at all levels of output, NC (a) rational, if the firm is covering its
Curve will be — variable cost.
(a) Curve with positive slope (b) rational, if the firm is covering its
(b) Straight Line with positive slope fixed costs.
(c) Rectangular Hyperbola (c) irrational, since plant closing is
(d) None of these necessary to eliminate losses.
(d) irrational, since fixed costs are
14. TC Curve will be a —
eliminated if a firm shuts down
(a) Curve with a positive slope
(b) Curve with a negative slope AVERAGE COST
(c) Ei ther (a) or (b)
(d) Neither (a) nor (b) 20. Average Cost is the same as —
( a ) Average Fixed Cost
15. TC Curve will — ( b ) Average Total Cost
(a) Increase, i.e. slope upward from ( c ) Average Variable Cost
left to right ( d ) All of the above
(b) Decrease, i.e. slope downward from
left to right 21. Which of the following is the Average
(c) Ei ther (a) or (b) Cost?
(d) Neither (a) nor (b) (a) Average Fixed Cost + Average
Variable Cost
16. TC Curve will commence from — (b) Average Total Cost
(a) A certain point on the Quantity (c) Total Cost divided by the
Axis (X Axis) number of units
(b) A certain point on the Cost Axis (d) All of the above
(Y Axis)
(c) O r i g i n 22. Which of the following statements
(d) Any of the above is true of the relationship among the
Average Cost Function?
17. TVC Curve will be — (a) ATC = AFC — AVC
( a) Higher than the NC Curve (b) AVC = AFC + A TC
( b) Lower than the NC Curve (c) AFC = A TC + AVC
(c) Parallel to X Axis (d) A F C = A TC A V C
( d) Parallel to Y Axis
18. The Vertical difference between TVC 23. If TVC = 1,000, TFC = 400, then
and TC is equal to— calculate ATC at 5 units.
( a ) M C (a) 280
( b ) AVC (b) 250
( c ) TFC (c) 150
( d ) None of these (d) 300
19. "I am making a loss, but with the rent I AVERAGE FIXED COST
have to pay,
I can't afford to shut down at this 24. Average Fixed Cost (AFC) equals —
point of time." If this entrepreneur is (a) ATC — AVC

(b) TFC divided by Output Quantity (a) Declines first, reaches its
(c) Both (a) and (b) minimum and then rises
(d) Neither (a) nor (b) (b) Rises first, reaches a
maximum and then declines
25. Which of the following describes the
(c) Remains constant throughout all
behaviour of Average Fixed Cost?
output levels
(a) Remains constant throughout all
(d) Declines throughout as output
output levels
increases
(b) Declines throughout as output
increases 31. Which of the following is true with
(c) Declines first, reaches its respect to Average Fixed Cost?
minimum and then rises (a) It is a bell shaped Curve
(d) Rises first, reaches a maximum (b) As the quantity increases it
and then declines approaches zero
26. In the short run, when the output (c) If quantity produced tends to
of a Firm increases, its Average Fixed zero, Average Fixed Cost
Cost\-- approaches infinity
( a ) I nc r eas es (d) Both (b) and (c) above
( b ) D ec rea se s
( c ) Remains constan t 32. The Average Fixed Cost Curve of a
( d ) First declines and then rises Firm —
(a) Is parallel to the Horizontal
27. The Average Fixed Cost — Axis
(a) Remains the same whatever the (b) Is parallel to the Vertical Axis
level of output (c) Is a Ù' Shaped Curve
(b) Increase as output increases (d) Is a Downward Sloping Curve
(c) Diminishes as output increases from left to right
33. AFC Curve will be a —
28. In the short run, when the output (a) Curve with a positive slope
of a Firm decreases, its Average Fixed (b) Curve with a negative slope
Cost — (c) Straight Line
( a ) I nc r eas es (d) None of the above
( b ) D ec rea se s
34. Which curve is downward sloping
( c ) Remains constan t
and does not touch the X-axis?
( d ) First declines and then rises
(a) AVC
29. Average Fixed Cost (AFC) of a Firm (b) MC
is ................................................. (c) ATC
related to its output. (d) AFC
(a) Directly 35. Which of the following Cost Curves is
( b ) I nv e r s e l y never 'Li' shaped?
( c ) Proportionately (a) Average Cost Curve
( d ) Not (b) Marginal Cost Curve
(c) Average Variable Cost Curve
30. Which of the following describes the (d) Average Fixed Cost Curve
behaviour of Average Fixed Cost Curve?

36. All of the following are U—Shaped Curves 2. 30
except the— 3. 40
(a) AVC Curve 4. 20
(b) AFC Curve
(c) AC Curve AVERAGE VARIABLE COST
(d) MC Curve
43. Average Variable Cost (AVC) equals —
37. AFC Curve — (a) ATC —AFC
(a) Will touch the Quantity Axis (X Axis) (b) TVC divided by Output Quantity
(b) Will touch the Cost Axis (Y Axis) (c) Both (a) and (b)
(c) Will touch both Axes (d) Neither (a) nor (b)
(d) Will not touch any Axis. 44. AVC decreases as output increases —
38. The AFC Curve passes through the (a) Upto normal capacity output
Origin. This statement is — (b) Beyond normal capacity output
(a) True (c) At all levels of output
(b) False (d) Nothing can be said
(c) Partially True 45. Upto Normal Capacity of output, as output

(d) Nothing can be said increases, AVC will —
39. Which statement among below is (a) Remain constant
correct in reference to AFC? (b) Decrease
(a) Never becomes zero (c) Increase
(b) Curve never touch X-axis (d) Nothing can be said

(c) Curve never touch Y-axis
46. AVC decreases as output increases,
(d) All of the these
upto normal capacity output, due to —
40. AFC curve is always ___ (a) Law of constant returns
(a) U-shaped if there is decreasing returns to (b) Law of diminishing returns
scale (c) Law of increasing returns
(b) U-shaped if there is increasing returns to (d) Law of negative returns
scale.
47. AVC increases as output increases —
(c) Declining when output increases.
(a) Upto normal capacity output
(d) Intersected by M.0 at its minimum
(b) Beyond normal capacity output
point refer back
(c) At all levels of output
41. Average Cost of Producing 50 units of a (d) Nothing can be said
Commodity is 250 and fixed cost is 1000.
What will be the average fixed cost of 48. Beyond Normal Capacity of output, as
producing 100 units of the Commodity? output increases, AVC will —
(a) Remain constant
1. 10
(b) Decrease
2. 30
3. 20 (c) Increase
4. 5 (d) Nothing can be said
42. A Firm's average fixed Cost id 20 at 6 49. AVC increases as output increases,
units of beyond normal capacity output, due to —
output. What will it be at 4 units of output? (a) Law of Constant Returns
1. 60 (b) Law of Diminishing Returns

(c) Law of Increasing Returns ( c ) Partially
True
(d) Law of Equi—Marginal Utility (d) Nothing can be said
50. Average Variable Cost Curve — 57. A firm produces 10 units of commodity at
(a) Slopes downwards at first and then an average total cost of Z 200 and with a
upwards fixed cost of Z 500. Find out component of
(b) Slopes upwards, remains constant and average variable cost in total cost.
then falls (a ) Z 300
(c) Slopes downwards always (b ) Z 200
(d) Remains a straight line parallel to X (c ) 150
Axis (d ) Z 100
51. Average Variable Cost Curve slopes AVERAGE COST OR AVERAGE TOTAL
downwards — COST
(b) Beyond normal capacity output 58. Average Cost (AC) equals —
(c) At all levels of output (a) ATC + AFC
(d) Nothing can be said (b) Total Cost divided by Output
Quantity
52. Average Variable Cost Curve has a negative
slope —
(b) Beyond normal capacity output 59. Initially Average Cost declines sharply
(c) At all levels of output due to the reason that —
(d) Nothing can be said (a) AFC declines significantly as output
53. Average Variable Cost Curve slopes upwards increases

— (b) AVC declines significantly as output
(a) Upto normal capacity output increases

(b) Beyond normal capacity output (c) AFC increases as output increases
(c) At all levels of output (d) AVC increases as output increases

60. Initially, even when there is an increase in
54. Average Variable Cost Curve has a positive
Average Variable Cost (AVC), Average
slope —
Cost (AC) may still decline due to the
reason that —
(b) Beyond normal capacity output
(a) Fall in AFC is less than the rise in
(c) At all levels of output
AVC
(b) Fall in AFC is greater than the rise
55. Average Variable Cost Curve is — in AVC
(a) Exactly a U Shaped Curve (c) Fall in AFC is equal to the rise in
(b) Not exactly a U Shaped Curve AVC
(c) Straight line (d) None of the above
(d) Not depicted in the Graph at all
61. Beyond certain output level, when
56. The AVC Curve passes through the there is an increase in Average Variable
Origin. This statement is — Cost (AVC), Average Cost (AC) also
(a) True increases due to the reason that —
(b) Fa l s e

(a) Fall in AFC is less than the sharp rise 67. Marginal Cost Curve cuts the Average Cost
in AVC Curve —
(b) Fall in AFC is greater than the sharp (a) At the left to its lowest point
rise in AVC (b) At its lowest point
(c) Fall in AFC is equal to the rise in (c) At the right to its lowest point
AVC (d) Any of the above
68. When, we know that the Firms must be
62. Average Cost Curve — producing at the minimum point of the
(a) Slopes downwards at first and then Average Cost
upwards Curve and so there will be productive
(b) Slopes upwards, remains constant and efficiency.
then falls Slopes downwards always (a) AC = AR
(b) MC = AC
(c)Remains a straight line parallel to X
(c) MC = MR
Axis
(d) AR = MR
63. The AC Curve and AVC Curve start
increasing at the same output level only. 69. The relationship between the AC and MC
This statement is is that
(a ) True (a) MC will always be less than the AC
( b) False (b) MC will be more than AC when MC
( c ) Partially True is falling

( d ) Nothing can be said (c) AC may be more than MC when MC
is rising
64. The AC Curve passes through the Origin. (d) None of the above
This statement is —
70. Which of the following statements is
( a ) Tr u e
( b ) Fal se
correct?
(a) When Average Cost is rising, Marginal
( d ) Nothing can be said
Cost must also be rising
(b) When Average Cost is rising, Marginal
65. Average Cost Curve is a — Cost must be falling
(a) U Shaped Curve (c) When Average Cost is rising,
(b) J Shaped Curve Marginal Cost is above the Average
(c) L Shaped Curve Cost
(d) Straight Line (d) When Average Cost is falling,
Marginal Cost must be rising
66. Average total cost to firm is Z 600 when it 71. If a Firm's Average Variable Cost Curve is
produces 10 units of output and Z 640 rising, its Marginal Cost Curve must be —
when the output is 11 units. The MC of the (a) Constant
11th unit is (b) Above the Total Cost Curve
( a ) 4 0 (c) Above the Average Variable Cost
( b ) 540 Curve.
( c ) 840 (d) All of the above.
( d ) 1 04 0
72. Which of the following is true of the
MARGINAL COST AND AVERAGE COST relationship between Marginal Cost and
RELATIONSHIPS Average Cost Functions?

(a) If MC is greater than AC, then AC is 79. When AC increases as a result of an
falling increase in output
(b) AC Curve intersects the MC Curve at
minimum MC (a) MC = AC
(c) MC Curve intersects the AC Curve at (b) MC < AC
minimum AC (c) MC > AC
(d) If MC is less than AC, then AC is (d) Nothing can be said
increasing 80. When MC Curve intersects AC Curve, it

means that
73. Marginal Cost is —
(a) MC is minimum
(a) Always less than the Average Cost
(b) AC is minimum
(b) Always more than the Average Cost
(c) Both MC and AC are minimum
(c) Equal to the Average Cost at its
minimum point
(d) Never equal to Average Cost 81. When MC Curve intersects AC Curve, it
means that —
74. When shape of Average Cost Curve is (a) AC is minimum
upward, Marginal Cost — (b) AC = MC
(a) Must be decreasing (c) Both (a) and (b)
(b) Must be constant (d) Neither (a) nor (b)
(c) Must be rising
(d) Any of the above COST COMPUTATIONS
75. The MC Curve cuts the AVC and ATC Curves 82. A Firm's Average Total Cost is ! 300 at 5
(a) At the falling part of each. units of output and 320 at 6 units of
(b) At different points. output. The Marginal Cost of producing the
(c) At their respective minimas. 6th unit is —
(d) At the rising part of each. (a) ! 20
(b) ! 120
76. MC Curve cuts the AVC and ATC Curves — (c) ! 320
(a) From above (d) ! 420
(b) From below
(c) Either (a) or (b) 83. A Firm has a Variable Cost of 1000 at 5
(d) Neither (a) nor (b) units of
output. If Fixed Costs are ! 400, what will
77. When AC falls as a result of an increase in be the Average Total Cost at 5 units of
output — output?
(a) MC = AC (a) ! 280
(b) MC < AC (b) ! 60
(c) MC > AC (c) ! 120
(d) Nothing can be said (d) 1 , 4 0 0
78, MC Curve is lower than AC, when — 84. What is the Average Total Cost in
(a) AC decreases producing 20 units, if Fixed Cost is 5,000
(b) AC increases and Variable Cost is ! 200?
(c) AC is at its minimum (a) ! 25
(d) Nothing can be said (b) ! 260
(c) ! 250
8

(d) ! 25 89. TFC at all levels of Output is —
2 (a) Nil
(b) 240
85. A Firm producing 7 units of output has an
(c) 330
Average Total Cost of ! 150 and has to pay
(d) 690
! 350 to its Fixed Factors of Production
whether it produces or not. How much of the 90. AFC for 3 units of Output is —
Average Total Cost is made up of Variable (a) 240
Costs? (b) 120
(a) ! 200 (c) 80
(b) ! 50 (d) 60
(c) 300
(d) ! 100
91. MC for 2nd unit of Output is —
(a) Nil
86. A Firm's Average Fixed Cost is ! 20 at 6 (b) 90
units of output. What will it be at 4 units of (c) 80
output? (d) 70
(a) Z 60
92. MC for 3rd unit of Output is —
(b) Z 30
(a) Nil
(c)! 4 0
(b) 90
(d) ! 20
(c) 80
87. For producing 100 units, Total Variable Cost (d) 70
is Z 500 and Total Fixed Cost is !
1,000.Compute Average Cost. 93. MC for 5th unit of Output is —
(a) 10 (a) 90
(b) 15 (b) 80
(c) 5 (c) 70
(d) 20 (d) 60
88. The Average Total Cost of producing 50
94. MC is minimum at units of Output.
units is Z 250 and Total Fixed Cost is Z
(a) 3
1,000. What is the Average Fixed Cost of
(b) 4
producing 100 units? ,17
(c) 5
(a) Z 10
(d) 6
(b) Z 30
(c) Z 20 95. AC for 3 units of Output is —
(d) Z5 (a) 205
Use the following data to answer the following (b) 160
11. questions (c) 135
Output (in units) Total Cost (TC) (in Z ) (d) 122 96. AC for 4 units of Output is —
0 240 (a) 205
1 330 (b) 160
2 410
3 480 (c) 135
4 540 (d) 122
5 610
6 690 97. AC for 5 units of Output is —
7 840 (a) 205
(b) 160

(c) 135 104.Which one of the following is also known
(d) 122 as Plant Curve?
(a) Long—Run Average Cost Curve
98. AC is minimum at units of Output. (b) Short—Run Average Cost Curve
(a) 4 (c) Average Variable Cost Curve
(b) 5 (d) Average Total Cost Curve
(c) 6
(d) 7 105.LAC = Least Cost combination for an
appropriate output level. This statement is
99. MC Curve will cut AC Curve at . units of
—
Output.
(a) True
(a) 4
(b) Fa l s e
(b) 5
(c) 6
(d) 7
106.In the long—run, the Firm will operate at
100.A company produces 10 units of output and
the ..............................................................
incurs Z 30 per unit of variable cost and Z 5
for any output level, by choosing the
per unit of fixed cost. In this case total cost
appropriate Plant Size.
is:
(a) Optimum cost
(a) Z 300
(b) Minimum cost
(b) Z 35
(c) Maximum cost
(c) Z 305
(d) 350
107.In the long—run, the Firm will decide on
LONG RUN COST BEHAVIOUR which SAC Curve it should operate to
produce a given output, so that its —
101.The period of time in which the Plant
(a) AC is minimum
Capacity can be varied is known as —
(b) AC is maxmum
(a) Short Period
(c) MC is minimum
(b) Market Period
(d) MC is maximum
(c) Long Period
(d) All of the above. 108.In the long—run, the Firm will try to select
—
102.Which is the other name given to the Long
(a) Lowest point of every SAC
Run Average Cost Curve?
(b) SAC with the lowest cost for a particular
(a ) Profit Curve
level of output
(b ) Planning Curve
(c ) Demand Curve
(d ) Indifference Curve
109.In the long—run, when there are infinite
103.Which one of the following is also known as
SAC Curves, the LAC Curve will be —
Planning Curve?
(a) Perpendicular to each SAC Curve
(a) Long—Run Average Cost Curve
(b) Connecting the lowest points of each
(b) Short—Run Average Cost Curve
SAC Curve
(c) Average Variable Cost Curve
(c) Smooth Curve, so as to be tangent to
(d) Average Total Cost Curve
each of the SAC Curves

110.LAC Curve is tangent to each of the infinite (c) The Short—Run Cost Curve at the
SAC Curves. This statement is — minimum point of the LAC Curve
(a) True represents the least—cost Plant Size for
(b) False all levels of output
( c ) Partially True (d) As output increases, the amount of
( d ) Nothing can be said capital employed by the Firm
increases along the Curve.
111.LAC Curve is the connection of all minimum
points of SAC Curves. This statement is — 117.If the LAC Curve falls as output expands,
(a ) True this falls is due to —
( b ) Fa l s e (a) Economies of Scale
( c ) Partially True (b) Law of Diminishing Returns
( d ) Nothing can be said (c) Diseconomies of Scale
112.When LAC Curve is declining, it will be
tangent to the 118.If the LAC Curve rises as output expands,
(a) Falling portions of the SAC Curves this falls is due to —
(b) Rising portions of the SAC Curves (a) Economies of Scale
(c) Both (a) and (b) (b) Law of Diminishing Returns
(d) Neither (a) nor (b) (c) Diseconomies of Scale
113.When LAC Curve is.. , it will be tangent to
the falling portions of the SAC Curves. 119. Long Run Average Cost Curves are
(a) Decreasing broadly—
(b) Increasing Both (a) and (b) (a) U — shaped
(c) Neither (a) nor (b) (b) Inverted U — shaped

(c) V s ha p e d
114.When LAC Curve is rising, it will be tangent to (d) L s h a p e d
the —
(a) Falling portions of the SAC Curves 120.The LAC Curve —
(b) Rising portions of the SAC Curves (a) Falls when the LMC Curve falls
(d) Neither (a) nor (b) (b) Rises when the LMC Curve rises
(c) Goes through the lowest point of the
115.When LAC Curve is ..................., it will be tangent to LMC Curve
the rising portions of the SAC Curves.
(a) Decreasing (d) Falls when LMC < LAC and rises when
(b) Increasing LMC > LAC
(d) Neither (a) nor (b) 121.Positively sloped (i.e. rising) part of long
run Average
116.Which of the following statements
Cost Curve is due to which of the following
concerning the Long—Run Average Cost
______________________________________
Curve is false?
(a) Constant Returns to Scale
(a) It represents the least—cost input
(b) Increasing Re tu rns to Scale
combination for producing each level of
(c) Diseconomies of Scale
output
(d) Economics of Scale
(b) It is derived from a series of Short—Run
Average Cost Curves
122.Planning curve is related to which of
the following

(a) Short-run average cost curve
(b) Long-run average cost curve
(a) Fixed cost curve
(b) Average variable cost curve

Revenue Concept: 7. Price X Quantity = .........

(a) Total Revenue
1. Total Revenue = (b) Average Revenue
(a) Money which a Firm realises by selling (c) Marginal Revenue
certain units of a commodity. (d) Zero Revenue
(b) Revenue earned per unit of output
(c) Change in Total Revenue (TR) resulting
8. If P = Price, and Q = Quantity sold, which of
from the sale of an additional unit of the the following statements are correct?
(a) Total Revenue = P x Q
commodity.
(b) Average Revenue= P x Q
(c) Marginal Revenue= P x Q
2. Average Revenue = (d) Zero Revenue = P x Q
(a) Money which a Firm realises by selling
9. If TR = Total Revenue, and Q = Quantity sold,
certain units of a commodity.
then TR ÷Q refers to —
(c) Change in Total Revenue (TR) resulting from (a) Total Revenue
the sale of an additional unit of the (b) Average Revenue
commodity. (c) Marginal Revenue
(d) None of the above (d) Zero Revenue
10. If TR = Total Revenue, Q = Quantity sold,

3. Marginal Revenue =
(a) Money which a Firm realises, by selling
and A is the rate of change, then ATR refers to
certain units of a commodity. —
(a) Total Revenue
(b) Average Revenue
(c) Change in Total Revenue (TR) resulting from
(c) Marginal Revenue
the sale of an additional unit of the
(d) Zero Revenue
commodity.
(d) None of the above 11. If Price = Z 50 and Quantity is 1,200 units,
then Total Revenue =
4. Marginal Revenue is equal to —
(a ) Z 1,250
(a) The change in price divided by the change
(b ) Z 1,150
in output
(c ) 60,000
(b) The change in quantity divided by the change
(d ) Z 50,000.
in price
(c) hThe change in P x Q due to a one unit 12. If Total Revenue = Z 1,00,000 when 20,000
change in output units are sold, then Average Revenue =
(d) Price, but only if the Firm is a price searcher (a) Z 1,00,000
(b) Z 20,000
5. The firm will attain equilibrium at a point where
(c) Z 5
MC curve cuts _ curve from below
(d) Z 1,20,000
(a) AR
(b) MR 13. If Total Revenue = Z 2,00,000 when 20,000
(c) AC units are sold, then Average Revenue =
(d) AVC (a ) Z 1,00,000
6. Price = ............. (b ) Z 20,000
(a) Total Revenue (c ) Z 1 0
(b) Average Revenue (d ) Z 1,20,000
(c) Marginal Revenue

(d) Zero Revenue
© Aditya Sharma Page 6.24

14. If a seller obtains Z 3,000 after selling 50 units Revenue resulting from an increase in output
and Z 3,100 after selling 52 units then MR will from 9 units to 10 units?
be— (a) Z 20
(a ) 59.62 (b) 19
(b ) 50.00 (c) Z 10
(c ) 60.00 (d) 1
(d ) 59.80
21. When Price = Z 20, quantity demanded is 15
15. When Price is Z 10, 5 units can be sold. When units, and when Price = 18, quantity
price is reduced to Z 9, 6 units can be sold. demanded is 16 units. What is the Marginal
Here, Marginal Revenue will be — Revenue resulting from an increase in output
(a) Z 10 from 15 units to 16 units?
(b) !9 (a) Z 18 negative
(c) Z1 (b) 18 positive
(d) Z4 (c) Z 12 negative
(d) Z 12 positive
16. When Price is Z 20, 5 units can be sold. When
price is reduced to Z 19, 6 units can be sold. 22. As quantity increases, Total Revenue (TR) Curve
Here, Marginal Revenue will be — —
(a) Z 14 (a) Always increases
(b) Z 27 (b) Always decreases
(c) Z 20 (c) First increases, reaches a maximum, and
(d) Z 19 then decreases.
17. When Price is Z 50, 12 units can be sold. When (d) First decreases, reaches a minimum, and
price is reduced to Z 48, 15 units can be then increases.
sold. Here, Marginal Revenue will be —
(a)Z 120 23. If Total Revenue (TR) increases, Marginal
(b)Z 4 0 Revenue (MR) will be —
(c) Z 6 0 (a) Positive
(d)Z 2 (b) Negative
(c) Ze ro
18. When Price is Z 5, 40 units can be sold. When (d) Infinity
price is reduced to Z 4, 60 units can be sold.
Here, Marginal Revenue will be — 24. If Total Revenue (TR) decreases, Marginal
( a ) Z 1 20 Revenue (MR) will be —
(b) Z 4 0 (a) Positive
(c) Z 6 0 (b) Negative
(d) Z 2 (c) Z e r o
(d) Infinity
19. If a Seller gets Z 10,000 by selling 100 units and 25. If Total Revenue (TR) is maximum, Marginal
Z 14,000 by selling 120 units, his Marginal Revenue (MR) will be —
Revenue is (a) Positive
(a ) Z 4,000 (b) Negative
(b ) Z 4 5 0 (c) Zero
(c ) Z 2 0 0 (d) Infinity
(d ) Z 1 0 0
26. Generally, Marginal Revenue (MR) Curve —
20. When Price = Z 20, quantity demanded is 9 (a) Is parallel to X Axis
units, and when Price = Z 19, quantity (b) Is parallel to Y Axis
demanded is 10 units. What is the Marginal (c) Slopes upward from left to right

(d) Slopes downward from left to right 34. If Marginal Revenue (MR) Curve is depicted on
a graph with Quantity on X axis —
27. Generally, Average Revenue (AR) Curve — (a) MR will not go below the X axis.
(a) Is parallel to X Axis (b) MR may go below the X axis.
(b) Is parallel to Y Axis (c) MR cannot be depicted on the graph at
(c) Slopes upward from left to right all.
(d) Slopes downward from left to right (d) None of the above
28. Generally, as quantity sold increases, 35. Average Revenue (AR) —

Marginal Revenue (MR) and Average Revenue (a) Will have positive values only
(AR) Curve — (b) Will have negative values only
(a) MR and AR increase (c) Can be positive or zero, but not negative.
(b) MR and AR decrease (d) Can be positive or zero or even negative.
(c) MR increases but AR decreases
(d) MR decreases but MR increases 36. What is the relationship between AR and MR?
(a) AR and MR both are negatively sloped
29. Generally, as quantity sold increases, (b) MR Curves always lies half—way between
Marginal Revenue (MR) Curve — AR Curve and Origin
(a) Increases (c) AR and MR both can be zero or negative
(b) Decreases (d) All of these
(d) Cannot be ascertained 37. Average Revenue (AR) Curve denotes—
(a) Demand
30. Generally, as quantity sold increases, (b) Supply
Average Revenue (AR) Curve — (c) Both (a) and (b)
(a) Increases (d) Neither (a) nor (b)
(b) Decreases
(c) Remains constant 38. If Average Revenue (AR) Curve is depicted on a
(d) Cannot be ascertained graph with Quantity on X axis —
(a) AR will not go below the X axis.
31. Let, Marginal Revenue = MR and Average (b) AR may go below the X axis.
Revenue = AR. Generally, as quantity sold (c) AR cannot be depicted on the graph at all.
increases — (d) None of the above
(a) MR falls quickly than AR
(b) MR falls slowly than AR 39. Which of the following is correct?
(c) MR and AR fall at the same rate (a) If Marginal Revenue is positive and falling,
(d) MR and AR do not change Total Revenue will rise at a decreasing rate.
(b) Total Revenue is equal to price times
32. Let, Marginal Revenue = MR and Average the quantity sold.
Revenue = AR. Generally, as quantity sold (c) Marginal Revenue and Average Revenue can
increases — be calculated from Total Revenue.
(a) AR falls quickly than MR (d) All of the above.
(b) AR falls slowly than MR
(c) AR and MR fall at the same rate 40. If Marginal Revenue = MR, Average Revenue =
(d) AR and MR do not change AR, and Price Elasticity of Demand = 'e' which of
the following is correct?
33. Marginal Revenue (MR) —
(a) Will have positive values only
(b) Will have negative values only
(c) Can be positive or zero, but not negative.
(d) Can be positive or zero or even negative.

(d) e = zero
41. If Marginal Revenue = MR, Price Elasticity
48. If Average Revenue (AR) = ! 30, Price Elasticity
Demand = è', and e < 1, then MR will be —
of Demand (e) = 1.5, then MR will be
(a) Positive
(a) Z 10
(b) Negative
(b) Z 20
(c) Zero
(c) Z 30
(d) Infinity
(d) Z Nil
42. Marginal Revenue will be negative if Elasticity 49. If Average Revenue (AR) = Z 30, Demand (e) =
of Demand is — 1, then MR will be —
(a) Positive
(a) Less than one.
(b) Negative
(b) More than one.
(c) Zero
(c) Equal to one.
(d) Infinity
(d) Equal to zero.
50. If Average Revenue (AR) = Z 30, Price Elasticity
of Demand (e) = 0.5, then MR will be —
of Demand = 'e', and e > 1, then MR will be —
(a ) Z 30 positive
(a) Positive
(b ) Z 30 negative
(b) Negative
( c ) N i l
(c) Z e r o
( d ) I nf i ni ty
(d) Infinity
51. If Average Revenue (AR) = 300, Price
44. If Marginal Revenue = MR, Price Elasticity Elasticity of Demand (e) = 2.5, then MR will
of Demand = è', and e = 1, then MR will be — be
(a) Positive
(b) Negative 180
(c) Z e r o
120
300
(d) Infinity Nil

of Demand = è', and MR is positive (i.e. MR > 0), 52. If Average Revenue (AR) =300, Price Elasticity
e will be of Demand (e) = 4, then MR will be —
(a) e > 1 (a) 105
(b) 225
(b) e < 1 (c) 300
(c) e = 1 (d) Nil
( d ) e = zero
46. If Marginal Revenue = MR, Price Elasticity 53. Given AR=5, Elasticity of demand =2 find
of Demand = è', and MR is negative (i.e. MR < MR—
0), e will be (a) 2.5
(a) e > 1 (b) - 2 . 5
(b) e < 1 (c) L 5
(c) e = 1 (d) 2.0
( d ) e = zero
PROFIT MAXIMISATION
54. Which is the first order condition for the
of Demand = è', and MR = 0, e will be
profit of a Firm to be maximum?
(a) e > 1
( a ) AC = MR
(b) e < 1
(c) e = 1 ( b ) M C = MR

(c) M R = AR 60. Suppose a Firm is producing a level of

(d) AC = AR output such that MR>MC. What should be
Firm do to maximize its profits?
55. In the short run, as the prices are fixed, (a) The Firm should do nothing
Firms can maximize their profit when they (b) The Firm should hire less labour
operate at (c) The Firm should increase price
( a ) M C = MR (d) The Firm should increase output
(b) M C > MR
(c) M C < MR 61. What should Firm do when Marginal
( d ) MC = AC Revenue is greater than Marginal Cost?
(a) Firm should expand output
56. If Marginal Cost = MC, and Marginal (b) Efforts should be made to make then
Revenue = MR, then, for achieving equal
equilibrium output, the conditions are — (c) Prices of the products should be lowered
( a ) M C = MR down
( b ) MC Curve should cut MR Curve from (d) All of the above
below.
( c ) Both (a) and (b) 62. If Marginal Cost = MC, and Marginal
(d) Neither (a) nor (b) Revenue = MR, and MC > MR, the Firm
should —
57. If Marginal Cost = MC, and Marginal (a) Increase its output
Revenue = MR, then, for achieving (b) Reduce its output
equilibrium output — (c) Operate at the present level itself
( a ) M C > MR (d) Should shut down
( b ) M C < MR
( c ) M C = MR 63. If Marginal Cost = MC, and Marginal
( d ) None of the above, Revenue = MR, then, for achieving
equilibrium output —
58. If Marginal Cost = MC, and Marginal (a) MC Curve should have positive slope
Revenue = MR, then, for achieving (b) MC Curve should have negative slope
equilibrium output — (c) MC Curve should be parallel to X Axis
(a) MC Curve should cut MR Curve from (d) MC Curve should be parallel to Y Axis
above.
(b) MC Curve should cut MR Curve from 64. Let Marginal Cost = MC, and Marginal
below. Revenue =
(c) MC Curve should not cut MR Curve at MR. If MC Curve cuts MR from below, it means —
all. (a) MC Curve has a negative slope
(d) MC Curve should be tangent to MR (b) MC Curve has a positive slope
Curve. (c) MC Curve is parallel to X Axis
(d) MC Curve is parallel to Y Axis
59. If Marginal Cost = MC, and Marginal
Revenue = MR, and MC < MR, the Firm 65. Let Marginal Cost = MC, and Marginal
should — Revenue
(a) Increase its output. MR. If MC Curve cuts MR from above, it
(b) Reduce its output
means —
(a) MC Curve is parallel to X Axis
(c) Operate at the present level itself.
(d) Should shut down. (b) MC Curve is parallel to Y Axis
(c) MC Curve has a negative slope
(d) MC Curve has a positive slope

66. Let Marginal Cost = MC, and Marginal (a) MR = MC

Revenue = (b) AR > AC
MR. If MC Curve cuts MR from above, it means — (c) Both of the above
(a) Firm is at equilibrium output level. (d) None of these
(b) Firm is below equilibrium output
level. 73. Let Average Cost = AC, and Average Revenue =
AR. If AR > AC, it means that the Firm —
(c) Firm is above equilibrium output
(a) Is earning Super—Normal Profits
level.
(b) Is earning Normal Profits
(d) Firm does not operate at all.
(c) Is making Losses
67. Let Marginal Cost = MC, and Marginal (d) Has to shut—down
Revenue
MR. If MC Curve cuts MR from below, it 74. Let Average Cost = AC, and Average Revenue =
means — AR. If AR = AC, it means that the Firm —
(a) Firm is at equilibrium output level. (a) Is earning Super—Normal Profits
(b) Firm is below equilibrium output (b) Is earning Normal Profits
level. (c) Is making Losses
(c) Firm is above equilibrium output (d) Has to shut—down
level.
75. Let Average Cost = AC, and Average Revenue
(d) Firm does not operate at all.
= AR. If AR < AC, it means that the Firm —
68. If any unit of production adds more to (b) Is earning Normal Profits
revenue than to cost it will result into — (c) Is making Losses in the economic sense
(a) Increase in Profit (d) Has to shut—down.
(b) Decrease in Profit
76. Let Average Cost = AC, and Average Revenue
(c) No change
= AR. If AC < AR, it means that the Firm —
(d) L o s s
(a) Is earning Super—Normal Profits.
69. If any unit of production adds more to cost (b) Is earning Normal Profits.
than to revenue it will result into — (c) Is making Losses.
(a) Increase in Profit (d) Has to shut—down.
(b) Decrease in Profit 77. Let Average Cost = AC, and Average Revenue =
(c) No change AR. If AC = AR, it means that the Firm —
(d) L o s s (a) Is earning Super—Normal Profits
(b) Is earning Normal Profits
70. When the Firm is said to be in equilibrium? (c) Is making Losses
(a) When it maximizes its Profit (d) Has to shut—down
(b) When it maximizes its Losses
78. Let Average Cost = AC, and Average Revenue =
(c) When Revenue is equal to Cost
AR. If AC > AR, it means that the Firm —
(d) None of these
71. When a Market is in equilibrium — (b) Is earning Normal Profits
(a) No shortages exist. (c) Is making Losses in the economic sense
(b) Quantity demanded equals quantity (d) Has to shut—down
supplied.
79. When ... , the Firm will be earning just
(c) A price is established that clears the
market. Normal Profits.
(d) All of the above are correct. (a) AC = AR
(b) MC = MR
72. Profits of the Firm will be more at — (c) MC = AC

(d) AR = MR (b) A C a nd V C
(c) A C a nd A R
80. When does a Firm earn Normal Profits? ( d ) A C a nd TR
(a) When MR = MC
(b) When AR = AC 87. When AR= Z 10 and AC=Z 8, the Firm
(c) When MR = AR = AC = AC makes—
(d) None of these (a) Normal Profit
(b) Net Profit
81. What are conditions when the Firm earns (c) Gross Profit
Super—Normal Profit? (d) Super—Normal Profit
(a) Average Revenue is more than Average Cost
(b) Average Cost is more than Average Revenue 88. Which of the following statements is
(c) MC Curve has negative slope incorrect?
(d) MR Curve has positive slope (a) If Marginal Revenue exceeds Marginal
Cost, the Firm should increase output.
82. For earning super—normal profits, the (b) If Marginal Cost exceeds Marginal
condition is at the point when MC = MR Revenue the Firm should decrease
(MC cutting from below) output.
(a) AR > AC (c) Economic Profits are maximized
(b) AR = AC when Total Costs are equal to Total
(c) AR < AC Revenue.
(d) None of the above. (d) Profits are maximized when Marginal
Revenue equals Marginal Cost.
83. For earning normal profits, the condition is
at 89. Suppose that a Sole Proprietorship Firm is
the point when MC = MR (MC cutting from earning Total Revenues of Z 120,000 and is
below) incurring Explicit Costs of Z 90,000. If the
(a) AR > AC Owner could work for another Company
(b) AR = AC for Z 50,000 a year, we would conclude
(c) AR < AC that
(d) None of the above.
(a) The Firm is incurring an Economic
84. For having economic losses, the condition is Loss
at (b) Implicit Costs are Z 90,000
the point when MC = MR (MC cutting from (c) The total Economic Costs are Z
below) 100,000
(a) AR > AC (d) The Individual is earning an Economic
(b) AR = AC Profit of Z 25,000
(c) AR < AC
(d) None of the above. 90. Suppose that a Sole Proprietorship is
earning Total Revenue of Z 1,50,000 and is
85. When , we know that the Firms are earning incurring Explicit Costs of Z 75,000. If
just Normal Profits. the Owner could work for another
(a) AC = AR Company for Z 30,000 a year, it can be
(b) MC = MR concluded that
(c) MC = AC
(d) AR = MR (a) The Firm is incurring an Economic
86. The Average Profit is the difference Loss
between— (b) Implicit Costs are Z 25,000
( a ) A C and TC (c) Total Economic Costs are Z

1,00,000

(d) The individual is earning an economic (c) Will have losses but will not shut
profit of Z 45,000 down
(d) Will increase the output
91. Suppose the Total Cost of Production of
Commodity 97. If AR < AVC and the Firm continues
X is Z 1,25,000. Out of this Cost, Implicit production, then
Cost is Z 35,000 and Normal Profit is Z (a) Losses will be reduced
25,000. What will be the Explicit Cost of (b) Profits will be reduced
Commodity X? (c) Losses will increase
(a) Z 90,000 (d) Profits will increase
(b) Z 65,000
(c) Z 60,000 98. If AR < AVC and the Firm stops
(d) Z 1,00,000 production, then —
(a) There is no profit no loss
92. If the Total Product Cost for (b) There is a Loss equivalent to Fixed
manufacturing of a commodity is Z Costs
1,50,000. Out of this, Implicit Cost is Z (c) There is a Profit
55,000 and Normal Profit is Z 25,000, what (d) None of the above
will be Explicit Cost?
(a) Z 95,000 99. What should Firm do if Total Revenue
(b) Z 1,25,000 from its product does not equal or
(c) Z 80,000 exceeds its Total Variable Cost?
( d ) Z 70,000 (a) Firm should carry production
SHUT DOWN POINT (b) Firm should stop the production
(c) Firm should carry production and at
93. Let Average Variable Cost = AVC, and least try to get revenues equal to fixed
Average Revenue = AR. If AR < AVC, it cost
means that the Firm (d) None of these
(a) Is earning Super—Normal Profits 100.In the short run, if the Firm cannot cover
(b) Is earning Normal Profits its Total Variable Cost —
(c) Is making Losses but need not (a) It continues its operations
shut—down (b) It shuts down its operations
(d) Has to shut—down temporarily
(c) It shuts down its operations forever
94. Which of these is a condition for shut—
(d) It makes more investments to
down of a Firm?
make the operations viable
(a) AR > AVC
(b) AR > AC 101.A Firm encounters its "Shut—Down Point"
(c) AR < AC when—
(d) AR < AVC (a) Average Total Cost equals price at the
profit—maximizing level of output.
95. A firm will close down in the short
(b) Average Variable Cost equals Price at
period, if AR is less than
the profit—maximizing level of output.
(a) AVC
(c) Average Fixed Cost equals price at
(b) AC
the profit-maximizing level of output.
(c) M C
(d) Marginal Cost equals Price at the
(d) N o n e
profit-maximizing level of output.
96. If AR < AVC then the Firm — 102.At which of the following points, does the
(a) Will continue and make profits Marginal
(b) Will shut—down

Cost Curve meet the Average Variable Cost (b) Price does not equal Marginal Cost
Curve? (c) Economies of Scale are being
(a) Shut Down Point reaped
(b) Break Even Point (d) Price is greater than Long Run
(c) Equilibri um Point Average Cost
(d) Profit Maximization Point
108.In the long-run, Firms will exit the
103."I am making a loss, but with the rent I market if the
have to pay, price of the good offered for sale is less than -
I can't afford to shut down at this point (a) Marginal Revenue
of time." If this Entrepreneur is (b) Marginal Cost
attempting to maximize profits or (c) Average Total Cost
minimize losses, his behaviour in the (d) Average Revenue
short-run is
109.In the long run, there is enough time for
(a) Rational, if the Firm is covering its
the Firm to cover its Losses and earn
Variable Cost.
Normal Profits. This is because in the
(b) Rational, if the Firm is covering its
long run, all inputs are -
Fixed Costs.
( a ) I d e nti c al
(c) Irrational, since Plant Closure is
( b ) Homogenous
necessary to eliminate losses.
(c) Va ria bl e
(d) Irrational, since Fixed Costs are
( d ) Fi x e d
eliminated if a Firm shuts down.
COMPREHENSIVE PROBLEMS
104.At Shut-Down Point -
A Competitive Firm sells as much as of its
(a) Price is equal to AVC product as it chooses at a Market Price of
(b) Total Revenue is equal to TVC 2100 per unit. Its Fixed Costs are 2300 and
(c) Total Loss of the Firm is equal to its Variable Costs for different levels of
TFC production are shown in the following table.
(d) All of the above Use the following table and answer the next
105. Long-Run Normal Prices is that which is 14 questions.
likely to prevail
Quantit TVC TFC TC AVC AFC AC MC
( a) All the times 0
y 0
( b) In market period 5 250
10 470
(c) In short -ru n period 15 700
( d) In long-ru n period 20 980
25 1350
106.In the long-run, if the Firm is unable to 30 1850
35 2520
cover the Average Total Cost then it - 40 3400
(a) Decreases the Selling Price 45 4530
(b) Increases the Labour to increase 50 595
production 0
110.When Production is 10 units, AVC will
(c) Decreases the Labour to decrease
be -
prediction
(a) Z 50.00
(d) Moves out of the business
(b) Z 47.00
107.In the long-run, any Firm will eventually (c) Z 46.67
leave the industry if - (d) Z 49.00
(a) Price does not at least cover Average
111.When Production is 10 units, AC will be
Total Cost
-

(a) Z 50.00 119.When Production is 50 units, AC will be -

(b) Z 97.00 (a) Z 100.00
(c) Z 77.00 ( b ) Z 110.00
(d) ! 110.00 ( c ) Z 119.00
(d) Z 125.00
be - 120.AC is minimum when output is -
(a) Z 50.00 ( a ) 10 units
(b) Z 47.00
(b) 20 units
(c) Z 46.67
(c) 30 units
(d) Z 49.00 ( d ) 40 units
113.When Production is 20 units, AC will be 121.MC Curve will cut AC Curve when output is
- -
(a) Z 50.00
( a ) 10 units
(b) Z 64.00
( b ) 20 units
(c) Z 77.00
( c ) 30 units
(d) Z 88.00
( d ) 40 units
be - 122.To maximize Profit, the Firm should
(a) Z 56.67 produce -
(b) Z 61.67 ( a ) 15 units
(c) Z 46.67 ( b ) 30 units
(d) Z 66.67 (c) 35 units

( d ) 50 units
115.When Production is 30 units, AC will be
- 123.If the Market Price drops from Z 100 to Z
(a) Z 66.67 56, the Firm's short run response should
(b) 7 1 . 6 7 be -
(c) Z 56.67 (a) Shut down
(d) Z 76.67 (b) Produce 5 units

(c) Produce 20 units
(d) Continue to produce the same number
be -
of units as before the drop in price.
(a) Z 85.00
(b) Z 82.50
Use Table to answer the following 4
(c) Z 92.50
questions.
(d) Z 95.00
117.When Production is 40 units, AC will be - Bozzo's burgers is a small restaurant and a
(a) Z 85.00 price taker. The table below provides the data
(b) 82.50 of Bozzo's output and costs in Rupees.
(c) Z 92.50 Qty TC FC AVC AC MC
(d) 95.00 0 100 - - -
10 210
20 300
118.When Production is 50 units, AVC will be - 30 400
( a ) Z 100.00 40 540
( b ) Z 110.00
50 790
60 1060
( c ) Z 119.00
( d ) Z 125.00

124.If burgers sell for Rs14 each, what is 128.When production equals 4 units, the firm's:
Bozzo's profit maximizing level of output : (a) Fixed cost is 100 and its variable cost
(a) 10 burgers is 93.
(b) 40 burgers (b) Fixed cost is 193 and its variable cost
(c ) 50 burgers is 0.
(d) 60 burgers (c) Fixed cost is 0 and its variable cost is
193,
125.What is the total variable cost when 50 (d) Fixed cost is 45 and its variable cost is
burgers are produced? 148.
( a ) Z 6 90
(b) 2960 129.When production equals 5 units, the
(c) 2 1 1 0 firm's Total Revenue is:
(d) Z 4 40 ( a ) Z 1 00
( b ) Z 2 70
126.What is average fixed cost when 20 ( c ) Z 3 24
burgers are produced? ( d ) Z 5 00
(a) Z 5 130.When production equals 6 units, the firm's
(b) Z 3.33 marginal revenue is:
(c) Z 10 (a ) Z 384
(d) Z 2.5 (b ) Z 9 4
(c ) Z 6 4
127.Between 10 to 20 burgers, what is the (d ) Z 2 .
marginal cost (per burger)?
131.When production equals 7 units, the firm's
(a) Z 11
profit is:
(b) Z 13
(a) +6Z 0
(c) Z 14
(b) Z 41.57
( d ) Z9
(c) Z 291
Use Table to answer the following 5 (d) Z 336
questions. 132.To maximize its profit, the firm should

The following table provides cost and price produce:
information for an individual firm. The first two (a) 0 units.
columns represent the demand curve that the (b) 3 units.
firm faces. The firm has a fixed amount of (c) 5 units.
capital equipment, but can change the level of (d) 7 units.
other inputs. such as labour and materials.
Calculate the missing values in the table, and
use the table to answer the below questions.
Production optimisation
(Make sure you answer each question using
the production level specified.)
1. The term "Iso" means —
Q P TC TVC MC TR MR
( a ) S in g le
0 130 45 ( b ) Unequal
1 124 88 (c) Eq ua l
2 118 125 ( d ) S im ila r
3 112 159
4 106 193 2. Isoquant represents
5 100 230 (a) Constant quantity of input
6 94 273 (b) Variable quantity of input
7 88 325 (c) Variable quantity of output
8 82 389 (d) Constant quantity of output
9 76 465
3. _________ represents all those combinations of

inputs which are capable of producing the same level of 8. Which of the following statements is true?
output. (a) All points on a Budget Line would cost the Firm the
(a) Isoquant same amount.
(b) I s o c o s t (b) Whatever the combination of Factor Inputs the
(c) Isoprice Firm chooses, the Total Cost to the Firm remains the
(d) None of the above same.
(c) A change in the relative Input Price will cause a
4. Isoquants are also called — change in the slope of the Isocost Line.
(a) Equal—Product Curves (d) All the above
(b) Production Indifference Curves
(c) Isoproduct Curves 9. The point of tangency between any Isoquant and an
(d) All the above Isocost Line gives the
(a) highest—cost combination of inputs and
5. Isoquants maximum level of output that can be produced
(a) Are concave to the origin (b) lowest—cost combination of inputs and minimum
(b) Touched both the axis level of output that can be produced
(c) Are non—intersecting (c) lowest—cost combination of inputs and maximum
(d) Are positively sloped level of output that can be produced
(d) highest—cost combination of inputs and
6. Isocost Lines are also called — minimum level of output that can be produced
(a) Equal cost Lines
(b) Budget Line - 10. A line joining tangency points of Isoquants and
(c) Budget constraint Line Isocosts is called
(d) All the above (a) Expansion Path
7. ________ shows the various alternative combinations (b) Contraction Path
of two Factor Inputs, which a Firm can buy with (c) Constant Path
given amount of money. (d) None of the above
(a) Isocost Lines
(b) Isoproduct Lines
(c) Isoprice Lines 1 2 3 4 5 6 7 8 9 10
(d) Isoquant lines c d a d c d a d c a


Market Forms, market price and output determination
MARKETS BASICS 7. Which of these is not a Market Structure in

Economics?
1. In Economics, a place where Buyers and Sellers (a) Perfect Competition
meet and bargain over a commodity for a price is (b) Monopoly
called— (c) Monopolistic Competition
a) Den (d) Intense Competition
b) Shop
c) Market 8. Which of these is a Market Structure in
d) Exchange Economics?
(a) Stock Exchange
2. Which of the following statements best describe a (b) Reserve Bank of India
"Market"? (c) Oligopoly
a) Place where Shares and Securities are (d) Government of India
bought and sold.

b) Place where Fruits and Vegetables are 9. Which of the following types of competition is
bought and sold. just a theoretical economic concept, not a realistic
c) Place where Buyers and Sellers meet and case where actual competition and trade take
bargain over a commodity for a price. place?
d) Place where transactions takes place. (a) Monopoly
(b) Oligopoly
3. Which of these is not a feature of Market? (c) Perfect Competition
a) Buyers and Sellers. (d) Monopolistic Competition
b) Commodity, Product or Service.

c) Bargaining for a Price 10. Free Entry / Exit is a characteristic feature of
d) Government Regulation and Control —
(a) Perfect Competition
4. Which of these is a feature of Market? (b) Monopoly
a) Perishable Nature of the commodity (c) Monopolistic Competition
b) Government Regulation and Control (d) (a) and (c)
c) One Price for a Product or Service at a given

time 11. Free Entry / Exit is a not a characteristic
d) Scarcity of Resources feature of —
(a) Perfect Competition
5. Which of the following is an element of Market (b) Monopoly
Structure? (c) Monopolistic Competition
(a) Buyers & Sellers (d) All the above.
(b) A product or service

(c) Bargaining for a Price 12. Free Entry / Exit is possible in —
(d) All of the above (a) short—run
(b) long—run
6. The Market for ultimate consumers is known as (c) Both (a) and (b)
(a) Whole Sale Market (d) Neither (a) nor (b)
(b) Retail Market

(c) Unregulated Market 13. Short run price is also known as:
(d) Regulated Market (a) Market price

(b) Showroom price (b) Cold Drink

(c) Maximum retail price (c) Automobile
(d) None of these (d) All of these
14. The market for Foodgrains, Cereals, 21. Toothpaste Manufacturing Industry is an
Vegetables, etc. closely resembles — example of
(a) Perfect Competition ( a) Perfect Competition
(b) Monopoly ( b) Monopoly
(c) Monopolistic Competition (c ) Monopolistic Competition
(d) Oligopoly. ( d) Oligopoly.
15. Railways is an example of — 22. Automobile (Cars) Manufacturing Industry is an

(a) Perfect Competition example of —
(b) Monopoly ( a) Perfect Competition
(c) Monopolistic Competition ( b) Monopoly
(d) Oligopoly. (c ) Monopolistic Competition
( d) Oligopoly.
16. Air Travel Service Industry is an example of —
(a) Perfect Competition 23. Toilet Soaps Industry is an example of —
( d) Oligopoly.
17. Electricity Supply Service is an example of —
(a) Perfect Competition 24. Mobile Phone Service Providers is an example of
( d) Oligopoly.
18. Bottled Cool Drinks Industry is an example of
— 25. The structure of the Cold Drink Industry in
( a) Perfect Competition India is best described as
( b) Monopoly (a) Perfectly Competitive
(c ) Monopolistic Competition (b) Monopolistic
( d) Oligopoly. (c) Monopolistically Competitive
(d) Oligopolistic
19. Agricultural Goods markets depict
characteristics close to — 26. The conditions of Firm Equilibrium, i.e. MC =
( a) Perfect Competition MR, and MC cuts MR from below, is applicable for
( b) Oligopoly —
(c ) Monopoly ( a) Perfect Competition
( d) Monopolistic Competition ( b) Monopoly
(c ) Monopolistic Competition
20. Which of the following is an Oligopoly? ( d) All of the above.
(a) Mobile Industry

27. In which of the following market conditions, (a) Monopolistic competition

does a Firm maximizes its profit when its Marginal (b) Perfect Competition
Revenue is equal to Marginal Cost? (c) Monopoly
( a) Perfect Competition (d) Oligopoly
( b) Monopoly Monopolistic Competition
(c ) All of the above. 33. The AR Curve and Industry Demand Curve
are same in the case of —
28. What is the other name given for Average (a) Monopoly
Revenue Curve? (b) Oligopoly
(a) Profit Curve (c) Perfect Competition
( b) Demand Curve (d) None of the above
(c) Average Cost Curve
( d) Indifference Curve 34. Why is the Demand Curve of the Market in
Monopoly is represented by the Demand Curve of
29. Which of the following is not a characteristic the Firm?
feature common to both Monopolistic Competition (a) Because there are many Firm in the market
and Perfect Competition? (b) Because there is only one Firm in the market
(a) Many Buyers and Sellers (c) Because there is only one buyer in the market
(b) Identical Products (d) Because there are many buyers in the market
(c) Easy entry and exit of Firms
(d) Firms take other Firms' prices as given 35. The relationship Industry = Large Number of
Firms, is applicable for —
30. As in Perfect Competition, the Firms operating ( a) Perfect Competition
in a monopolistically competitive industry can ( b) Monopolistic Competition
realize only Normal Profits in the long run because (c) Monopoly
(a) The Firms tend to have diseconomies of (d) Both (a) and (b)
scale in the long run
(b) There are virtually no entry or exit barriers 36. The relationship Industry = a Few Firms, is
(c) Consumers are more price sensitive in the applicable for —
long ruin that in the short run (a) Perfect Competition
(d) Cartels agreements tend to be more (b) Monopoly
unstable with the increase of time as member (c) Monopolistic Competition
Firms try to increase their profits by cheating on (d) Oligopoly.
the agreement
37. Which among the following market structures
31. The relationship Firm = Industry is applicable has the highest product differentiation?
for — (a) Pure or Perfect Competition
( a) Perfect Competition (b) Monopolistic Competition
( b) Monopoly (c) Oligopoly
(c ) Monopolistic Competition (d) Monopoly
( d) Oligopoly.
38. Which among the following market structures
32. In which of the following market structures is has the highest price elasticity?
the demand curve of the market is represented by (a) Pure or Perfect Competition
the demand curve of the Firm? (b) Monopolistic Competition

(c) Oligopoly (c) Oligopoly

(d) Monopoly (d) Duopoly
39. Which of the following market forms will never 45. Which of the following statements about Price
suffer losses in the short run? and Marginal Cost (MC) in competitive and
(a) Perfect Competition monopolized markets is true?
(b) Oligopoly (a) In Competitive Markets, Price = MC; in
(c) Monopoly monopolized Markets, Price > MC.
(d) None of these (b) In Competitive Markets, Price = MC; in
Monopolized Markets, Price = MC.
40. Under which of the following market structures (c) In Competitive Markets, Price > MC; in
is the price lower and output larger? Monopolized markets, Price > MC.
(a) Perfect Competition (d) In Competitive Markets, Price > MC; in
(b) Monopolistic Competition Monopolized markets, Price = MC.
(c) Monopoly
(d) Oligopoly 46. In which of the following types of market
structures
41. In which form of the market structure is the can a Firm earn abnormal profits in the long run?
degree of control over the price of its product by a (a) Perfect Competition
Firm very large (b) Monopolistic competition
( a ) Monopoly (c) Monopoly
( b ) Imperfect Competition (d) None of the above
( c ) Oligopoly
( d ) Perfect Competition 47. In which of the following types of market
structure, do Firms produce homogeneous
42. Under which of the following forms of market products?
structure does a Firm has no control over the price (a) Monopoly
of its product (b) Differentiated Oligopoly
( a ) Monopoly (c) Perfect Competition
( b ) Monopolistic competition (d) Monopolistic Competition
( c ) Oligopoly
( d ) Perfect Competition 48. Which of the following statements is incorrect?
(a) Even Monopolist can earn losses
43. A market structure in which many Firms sell (b) Firms in a perfectly competitive market are
products that are similar but not identical is known Price Takers.
as — (c) It is always beneficial for a Firm in a Perfectly
(a) Monopolistic Competition A Competitive Market to discriminate prices.
(b) Monopoly (d) Kinked demand curve is related to an
(c) Perfect Competition Oligopolistic Market.
(d) Oligopoly
49. Which of the following statements is not true
44. Which of the following types of market structure with respect to the long run?
is the exact opposite of Perfect Competition? (a) A Firm in a monopolistically competitive
(a) Monopolistic competition industry earns only normal profits in the long run
(b) Monopoly (b) A Monopolist does not make losses

(c) A Perfectly Competitive Firm earns only normal (c) Duopoly

profits in the long run (d) Oligopsony
(d) Monopolistically Competitive Firms will be
producing at minimum average cost 56. Duopoly is a market situation in which —
(a) there are only two Firms in the market
50. P = MR = MC = AC = is the condition of — (b) there is a Single Buyer of a product or service
(a) Long run equilibrium for a Firm under Perfect (c) there is only a Single Buyer and a Single
Competition Seller
(b) Long run disequilibrium for a Firm (d) none of the above
(c) Long run equilibrium for a Firm under
Monopoly 57. A person who charges different prices in
(d) Long run equilibrium for a Firm under different sub—markets is —
Monopolistic competition (a) Discriminating Monopolists
(b) Simple Monopolists
51. Which of the following features is not seen in (c) Selective Monopolists
Imperfect Competition? (d) None of the above
(a) Few Sellers
(b) Product Differentiation PERFECT COMPETITION
(c) Price wars
(d) All goods are Homogenous 1. In India which of the following best describes a
perfectly competitive market?
52. Market situation in which there are only two (a) Sugarcane Cultivation
Firms in the market (b) Indian Railways
(a) Monoposony (c) Toilet Soap Industry
(b) Bilateral Monopoly (d) Electricity Distribution
(c) Duopoly
(d) Oligopoly 2. Which industry best fits the description of a
Perfectly Competitive market?
53. A market characterized by a Single Buyer of a ( a ) Automobile
product or service. ( b ) PC
(a) Monoposony (c) Soft—drinks
(b) Bilateral Monopoly ( d ) Agriculture
(c) Duopoly
(d) Oligopoly 3. Under Perfect Competition, there are
Sellers.
54. A market characterized by a small number of ( a ) Many
large buyers. ( b ) Only one
(a) Monoposony ( c ) A Few
(b) Bilateral Monopoly Duopoly ( d ) No
(c) Oligopsony
4. Under Pure Competition, there are Sellers.

55. A market structure in which there is only a ( a ) Many
Single Buyer and a Single Seller ( b ) Only one
(a) Monoposony ( c ) A Few
(b) Bilateral Monopoly ( d ) No

( b) Price Movers
5. Which of the following is not an essential (c ) Price Givers
condition of Pure Competition? ( d) Price Offerers
(a) Large number of Buyers and Sellers
(b) Homogeneous Product 12. In which competition, firm has no control
(c) Freedom of entry over price?
(d) Absence of Transport Cost ( a ) Monopoly
( b ) Perfect competition
6. Which of the following is not true about perfect ( c ) Monopolistic Competition
competition? ( d ) Oligopoly
(a) Purchase and sale of homogeneous goods
(b) Mobility of factors of production 13. In a Perfect Competitive Market —
(c) Free entry and exit (a) Firm is the Price—Giver and Industry is the
(d) Presence of advertisement Price Taker
(b) Firm is the Price Taker and industry is the
7. Under Perfect Competition, the product is — Price—Giver
(a) Differentiated (c) Both are Price Takers
(b) Homogeneous (d) none of the above
(c) Influenced by Brand Name 14. The distinction between a single firm & an
(d) Always Intangible Industry vanishes in which of the following
market condition
8. Under Perfect Competition, each Firm is a ( a ) Monopoly
( a ) Price Maker ( b ) Perfect competition
( b) Price Taker ( c ) Monopolistic competition
( c ) Price Maker for its own product. ( d ) Imperfect competition
( d) All of the above.
15. How are prices determined under Perfect
9. Price under perfect competition is determined Competition?
by — (a) At the equilibrium price of Firm
( a ) Firm (b) At the equilibrium prices of Industry
( b ) Industry (c) At the point where MR = MC
( c ) Government (d) All of these
( d ) Society
16. Under Perfect Competition, each Firm's
10. In a perfect competition, who set the prices: control over price is —
( a ) Buyers (a) Nil
( b ) Sellers (b) Full and Absolute
( c ) Both buyers and sellers (c) Subject to Competing Firms' Strategies
( d ) Government (d) None of the above.
11. The assumptions of large number of Sellers 17. Under Perfect Competition, Price Elasticity of
and product homogeneity in Perfect Competition, Demand is
implies that all individual Firms in Perfect (a) Nil
Competition are — (b) Less Elastic
( a) Price Takers (c) More Elastic

(d) Infinity
24. Under Perfect Competition, in the long—run,
18. In a Perfectly Competitive Market, the a Firm
Demand Curve is (a) will always be a Optimal Firm.
(a) Relatively inelastic (b) will never be an Optimal Firm.
(b) Unitary elastic (c) may or may not be an Optimal Firm.
(c) Relatively elastic (d) will leave the industry.
(d) Infinitely elastic
25. Which of these is not a feature of Perfect
19. Under Perfect Competition, the Firm's Competition?
Demand Curve is (a) Large Number of Buyers & Sellers
(a) Horizontal Line, parallel to X Axis (b) Homogeneous Products
(b) Vertical Line, parallel to Y Axis (c) Free Entry / Exit
(c) Negatively Sloped (d) Preference of Consumers towards one
(d) Kinked. Supplier
20. What is the shape of the Demand Curve 26. Which of the following is a feature of Perfect
faced by a Firm under Perfect Competition? Competition?
( a ) Horizontal (a) Firms are free to produce any number of
( b ) Vertical units of different commodities
( c ) Positively sloped (b) Firms are free to enter and exit from the
( d ) Negatively sloped industry
(c) Firms are free to produce any type of a
21. In India, the Milk Market resembles a commodity
perfectly competitive industry. If the industry is (d) None of the above
an increasing cost industry, the long run supply
curve of the industry 27. One of the essential conditions Perfect
(a) Slopes upward to the right Competition is —
(b) Slopes downward to the right (a) Product Differentiation
(c) Would be a vertical straight line (b) Multiplicity of prices for identical product
(d) Would be horizontal straight line at any one time
(c) Many Sellers and few Buyers
22. Under Perfect Competition, a Firm can earn (d) Only one price for identical goods at any
in the long—run. one time
( a) Normal Profits only
( b) Super Normal Profits 28. Which of the following is true about Perfect
(c ) Losses Competition?
( d) All of the above. (a) Firms can enter freely in the market but it
is difficult to exit from the market
23. Under Perfect Competition, in the long—run, (b) Firms face difficulty in entering the
a Firm market, but Firms can freely exit from the market
(a) will not have excess capacity. (c) Entry and exit in the market is highly
(b) may have excess capacity restricted
(c) has no capacity at all (d) Firms are free to enter and exit the market
(d) will leave the industry.

29. Which of the following statements regarding (b) Lack of Perfect Knowledge
Perfect Competition is false? (c) Inefficient Transportation Facilities
(a) Supply and Demand forces determine the (d) Mobility of Factors of Production
price of a commodity
(b) All Buyers in the Market are always in 35. Which of the following is not a characteristic
position to influence the market feature of Perfect Competition?
(c) In the short run, the Firm takes Market (a) All the sellers sell at the same price
Price as given (b) All the products are homogenous
(d) Considering the Market Price, Firm (c) Customers have no bargaining power
adjusts the level of output to maximize profits (d) Customers have no purchasing power
30. Which of these is not a feature of Perfect 36. Which of the following statements regarding
Competition? Perfect Competition is false?
(a) Restriction in Entry of new Firms (a) The Marginal Revenue Curve is a straight
(b) Perfect Knowledge line
(c) Efficient Transportation Facilities (b) In the short run, Fixed Costs remain
(d) Uniform Market Price constant and cannot be changed
31. Which of the following is not a condition of (c) The Firm becomes a Price—Taker and
Perfect Competition? tries to achieve equilibrium
(a) Large Number of Firms (d) Marginal Revenue is more than the price
(b) Perfect Mobility of Factors
(c) Informative advertising to ensure that 37. Under Perfect Competition, all output can be
consumers have good information sold —
(d) Freedom of entry and exit into and out of the (a) at different prices
market (b) at the same price only
(c) at zero price
32. Which of the following is not a characteristic (d) only when Buyers are willing to buy.
of a Perfectly Competitive Market?
(a) Large number of Firms in the industry 38. Which of the following statements is false in a
(b) Outputs of the Firms are perfect substitutes Perfectly Competitive Market with constant returns
for one another to scale?
(c) Firms face downward—sloping Demand (a) The long run average cost curve will be
Curves horizontal at each Firm's minimum average cost
(d) Resources are very mobile (b) The long run average cost curve will be
horizontal at each Firm's zero—profit price
33. Which of the following is not a characteristic (c) The long run equilibrium in a competitive
of a Perfectly Competitive Market? industry will be one with no economic profit
(a) Large number of Buyers and Sellers (d) With a constant increase in one input, keeping
(b) Homogeneous Product other inputs constant, the output could be
(c) Free entry and exit of Firms increase
(d) Presence of high transportation costs
39. Under Perfect Competition, Demand (D) =
34. Which of these is not a feature of Perfect (a) Average Revenue (AR)
Competition? (b) Marginal Revenue (MR)
(a) Free Entry / Exit (c) Price (P)

(d) All of the above (b) AR = Price

(c) Negatively — sloped Demand Curve
40. Which of the following curves resembles the (d) Marginal Revenue = Price
Demand Curve in a Perfect Competition?
(a) Average Cost Curve 46. Price—Taking Firms, i.e., Firms that operate
(b) Marginal Utility Curve in a perfectly competitive market, are said to be
(c) Average Utility Curve "small" relative to the market. Which of the
(d) Average Variable Cost Curve following best describes this smallness?
(a) The individual Firm must have fewer than
41. Which of the following statement is not true 10 employees
about Perfect Competition? (b) The individual Firm faces a downward—
(a) The Demand Curve is also the Firm's Average sloping demand curve
Revenue Curve (c) The individual Firm has assets of less than
(b) The Demand Curve is a horizontal line. 20 la kh
Demand increases as price increases (d) The individual Firm is unable to affect
(c) Supply increases as price decreases market price through its output decisions
42. Under Perfect Competition price of the

Product 47. For the price—taking Firm —
(a) can be controlled by individual Firm (a) Marginal Revenue is less than Price
(b) cannot be controlled by individual Firm (b) Marginal Revenue is equal to Price
(c) can be controlled within certain limit by (c) Marginal Revenue is greater than Price
individual Firm (d) The relationship between Marginal Revenue
(d) none of the above and Price is indeterminate
43. In Perfect Competition, since the Firm is a 48. The Firm in a Perfectly Competitive Market is
price—taker, the Curve is a Straight Line. a Price Taker. This designation as a Price Taker is
( a ) Marginal Cost based on the assumption that —
( b ) Total Cost (a) The Firm has some, but not complete, control
( c ) Total Revenue over its product price
( d ) Marginal Revenue (b) There are so many buyers and sellers in the
market that any individual Firm cannot affect the
44. Price Taker Firms — market
(a) Advertise to increase the demand for their (c) Each Firm produces a homogeneous product
products. (d) There is easy entry into or exit from the
(b) Do not advertise because most advertising market place
is harmful for the society.
(c) Do not advertise because they can sell as 49. A Perfectly Competitive Firm Producer has
much as they want at the current price. control over —
(d) Who advertise will get more profits than ( a ) Price
those who do not. ( b ) Production as well as price
( c ) Control over production, price and consumers
45. Which of the following is not a characteristic ( d ) None of the above
of a "Price Taker"?
(a) TR = P xQ

7.25
50. Under Perfect Competition, Demand (D) = AR

= MR = Price. This statement is — 56. In Perfect Competition, a Firm maximizing its
( a ) True profits will set its output at that level where —
(b) False (a) Average Variable Cost = Price
( c ) Partially True (b) Marginal Cost = Price
(d) None of the above (c) Fixed Cost = Price
(d) Average Fixed Cost = Price
51. Under Perfect Competition, Total Revenue is
equal to Marginal Revenue times the quantity 57. Which of the following market situations
sold. This statement is — explains Marginal Cost equal to Price for attaining
( a ) True equilibrium?
(b) False (a) Perfect Competition.
( c ) Partially True (b) Monopoly
(d) None of the above (c) Oligopoly.
(d) Monopolistic Competition.
52. If a Competitive Firm doubles its output, its
Total Revenue — 58. In a Perfectly Competitive Market, if MC =
( a ) doubles Marginal Cost, MR = Marginal Revenue, AR =
( b ) more than doubles Average Cost and P = Price, the first order
( c ) less than doubles condition for profit maximization will be —
( d ) cannot be determined because the price of (a) MC< MR<AR< P
the good may rise or fall ( b) MC= MR=AR=P
(c) MC> MR>AR> P
53. In Perfect Competition, a Firm can maximize ( d) MC=MR>AR=P
its profit in short—run only when —
(a) Average Revenue is more than Marginal 59. Which is the first order condition for the profit of
Revenue a firm to be maximum*
(b) Marginal Revenue is equal to Total Cost (a) AC = MR
(c) Average Revenue is equal to Marginal Cost (b) MC = MR
(d) Marginal Cost is equal to Marginal Revenue (c) MR = AR
(d) AC = AR
54. A Competitive Firm maximizes profit at the
output level where — 60. Under the Perfect Competition a Firm will be in
(a) Price equals Marginal Cost. Equilibrium when —
(b) Slope of the Firm's profit function is equal to (a) MC = MR
zero. (b) MC cuts MR from below
(c) Marginal Revenue equals Marginal Cost. (c) MC is rising when it cuts MR
(d) All of the above. (d) All of the above
55. In Perfect Competition, when Marginal Cost 61. Under Perfect Competition, a Firm can earn
Marginal Revenue, Profit is in the short—run.
( a ) Maximum ( a) Normal Profits only
( b ) Average ( b) Super Normal Profits
( c ) Zero (c ) Losses
( d ) Not Possible ( d) All of the above.

(c) At that output level the price covers the

62. Under Perfect Competition, in the short—run, average variable costs of the Firm
the condition AR = MR = MC = AC, means that the (d) At that output level the price covers the
Firm is earning — average total costs of the Firm
(a) Normal Profits only
(b) Super Normal Profits 68. If the price falls below the Minimum Average
(c) Losses Variable Cost, a Firm operating under Perfect
(d) All of the above. Competition should, in the short run,
(a) Produce an output where MR = MC
63. Under Perfect Competition, in the short—run, if (b) Reduce its output so as to increase the price
AR > AC at the point when MC = MR, it means that and profits
the Firm — (c) Stop production (output) until price increases
( a) Normal Profits only (d) Continue to produce in the short run, but not
( b) Super Normal Profits in long run
(c ) Losses
( d) All of the above. 69. In Perfect Competition, a Firm increases profit
when exceeds
64. Under Perfect Competition, in the short—run, (a) Total Cost, Total Revenue
if AR < AC at the point when MC = MR, it means (b) Marginal Cost, Marginal Revenue
that the Firm — (c) Total Revenue, Total Fixed Cost
( a) Normal Profits only (d) Average Revenue, Average Cost
( b) Super Normal Profits
(c ) Losses 70. In a perfectly competitive markets, if MR is
( d) All of the above. greater than MC then a firm should—
(a) Increase its production
65. In the short run, if a Perfectly Competitive (b) Decrease its production
Firm finds itself operating at a loss, it will — (c) Increase in sales
(a) reduce the size of its plant to lower fixed costs. (d) Decrease in sales
(b) raise the price of its product.
(c) shut down. 71. In Perfect Competition, a Firm's Profit
(d) continue to operate as long as it covers its diminishes when ________exceeds
variable cost. (a) Marginal Revenue, Marginal Cost
(b) Marginal Cost, Marginal Revenue
66. Under Perfect Competition, in the short—run, (c) Marginal Revenue, Average Cost
the condition for shut—down is — (d) Average Revenue, Average Cost
( a ) AR < AC
( b ) AR > AC 72. In a perfectly competitive market, in the long
( c ) AR > AVC run, competitive prices equal the minimum possible
( d ) AR < AVC cost.
(a) Marginal
67. Which of the following is true with reference to (b) Variable
shut down point in a Perfect Competition? (c) Total
(a) The profits of the Firm equals its total costs (d) Average
(b) At that output level the price covers the
average fixed costs of the Firm

73. Under Perfect Competition, the burden of a 79. In the long—run, Industry Equilibrium is
specific tax would be borne by — achieved if SMC = SAC = LAC = LMC = LMR =
(a) Seller LAR = Price. This condition is applicable for —
(b) Buyer ( a) Perfect Competition
(c) Seller and buyer equally ( b) Monopoly
(d) Cannot say (c ) Monopolistic Competition
( d) Oligopoly.
74. Under Perfect Competition, the condition for
equilibrium is AR = MR = MC = AC. This is for 80. Under Perfect Competition, the condition for
(a) short—run Industry Equilibrium, i.e. SMC = SAC = LAC =
(b) long—run LMC = LMR = LAR = Price, is applicable for —
(c) Both (a) and (b) (a) short—run
(d) Neither (a) nor (b) (b) long—run
75. Under Perfect Competition, in the long—run, (d) Neither (a) nor (b)
the LAC Curve will be to the AR Curve.
(a) tangent 81. When the Perfectly Competitive Firm and
(b) perpendicular industry are in long run equilibrium then —
(c) parallel ( a ) P=MR=SAC=LAC.
(d) coinciding ( b ) D=MR=SMC=LMC.
( c ) P=MR=Lowest point on the LAC curve.
76. Under Perfect Competition, in the long—run, ( d ) All of the above.
the ______ will be tangent to the AR Curve.
(a) LAC Curve 82. In the long run, the Pure Competition Firm can
(b) LMC Curve have
(c) Demand (a) Super Normal Profit
(d) Supply (b) Normal Profits
(c) Losses
77. Under Perfect Competition, in the long—run, (d) All of these
the industry is said to be in equilibrium, if —
(a) All the Firms are earning normal profits only. 83. In Long run which of the following is true for a
(b) There is no further entry or exit of Firms to / perfect competition
from the market. (a) Industry is operating at minimum point of
(c) Both (a) and (b) AC curve
(d) Neither (a) nor (b) (b) MC is greater than MR
(c) AFC is less than AVC
78. Under Perfect Competition, in the long—run, (d) Price is less than AC
if SMC = SAC = LAC = LMC = LMR = LAR = Price,
then the industry is said to be — 84. In Perfect Competition, in the long run —
(a) Growing (a) There are large Profits for the Firm
(b) in troubled times (b) There are large Losses for the Firm
(c) in Equilibrium (c) There is no super—normal profit and no
(d) inefficient loss for the Firm
(d) There are negligible profits for the Firm

85. What are the conditions for long—run (c) Both (a) and (b)
equilibrium of the Competitive Firm? (d) Neither (a) nor (b)
(a) LMC = LAC = P
(b) SMC = SAC = LMC 92. Under Perfect Competition, the Firm's MC
(c) P = MR Curve will be the same as —
(d) All of these ( a ) Supply Curve
( b ) Demand Curve
86. Under Perfect Competition, in the long—run, ( c ) Production Possibility Curve
Output is produced at — ( d ) Indifference Curve
(a) minimum feasible cost
(b) maximum cost 93. Under Perfect Competition, the Firm's Supply
(c) optimal cost Curve will be the same as —
(d) zero cost (a) Marginal Revenue (MR) Curve
(b) Average Revenue (AR) Curve
87. Under Perfect Competition, in the long—run, (c) Marginal Cost (MC) Curve
LAC refers to — (d) Average Cost (AC) Curve
(a) minimum feasible cost
(b) maximum cost 94. Under Perfect Competition, the Firm's Supply
(c) optimal cost Curve will be the same as Marginal Cost (MC)
(d) zero cost Curve for —
(a) the portion above AVC
88. Under Perfect Competition, in the long—run, (b) the portion below AVC
resources will be — (c) Both (a) and (b)
(a ) fully used (d) Neither (a) nor (b)
(b) partially used
(c) not used at all 95. Normally, in the short run, the supply curve of
(d) wasted a perfectly competitive Firm slopes
(a) Downward from left to right
89, Excess Capacity is not found under — (b) Upward from right to left
( a ) Monopoly (c) Upward from left to right
( b ) Monopolistic Competition (d) Downward from right to left
( c ) Perfect Competition.
( d ) Oligopoly. 96. The short—run supply curve of the Perfectly
Competitive Firm is given by —
90. Under Perfect Competition, the Firm's AR and (a) Rising Portion of its MC Curve over and above
MR Curve will be the same as — the Shut—Down Point
( a ) Supply Curve (b) Rising Portion of its MC Curve over and above
( b ) Demand Curve the Break—Even Point
( c ) Production Possibility Curve (c) Rising Portion of its MC Curve over and above
( d ) Indifference Curve the AC Curve
(d) Rising Portion of its MC Curve
91. Under Perfect Competition, the Firm's
Demand Curve will be the same as — 97. A Purely Competitive Firm's Supply Schedule in
(a) Marginal Revenue (MR) Curve the short run is determined by —
(b) Average Revenue (AR) Curve (a) Its Average Revenue

7.28
(b) Its Marginal Revenue 102.If the Market Price drops from Z 51 to Z 47, the
(c) Its Marginal Utility for money curve Firm should —
(d) Its Marginal Cost curve (a) Close down
(b) Produce 10 units
98. In Perfect Competition, in the long run, if a new (c) Produce 30 units
Firm enters the industry, the Supply Curve shifts to (d) Produce 20 units
the right resulting in —
(a) Fall in Price Monopoly
(b) Rise in Price 1. Under Monopoly, there is / are_______Seller(s).
(c) Reduction in Supply (a) Many
(d) No change in Price (b) Only one
(c) A Few
A Competitive Firm sells its product at Market Price (d) No
of Z 51 per unit. The Fixed Cost is 300 and Variable
Cost for different level of production are shown in 2. Under Monopoly, the product is —
the following table. Answer the following questions (a) Differentiated
(b) Homogeneous
Variable Fixed Total
Quantity AVC ATC MC (c) Necessity Goods
Cost Cost Cost
0 (d) Always Intangible
10 470
20 980 3. In Monopoly, entry of new Firms —
30 1850
40 3400 (a) is restricted at all times
50 5950 . (b) is possible only in short—run
(c) is possible only in long—run
99. When production is 30 units, the Average (d) both (b) and (c)
Variable Cost is —
(a) 70.6 4. Under Monopoly, each Firm is a
(b) 60.6 (a) Price Maker
(c) 61.6 (b) Price Taker
(d) 71.6 (c) Price Maker for its own product.
(d) All of the above.
100. When Production is 50 units, Marginal Cost is
— 5. Monopolist can control only
(a) 265 (a) Price
(b) 255 (b) Demand
(c) 245 (c) Utility
(d) 275 (d) Both (a) & (b)
6. Which of the following is false regarding
101.To maximize profit, the Firm should produce — Monopoly?
(a) 30 units (a) Firm is a price taker
(b) 10 units (b) Unique product
(c) 20 units (c) Single Seller
(d) 40 units (d) None of the above

7. Under which of the followings forms of market 13. By Imperfect Monopoly, we mean —
structure does a firm has very considerable (a) It is possible to substitute the Monopolized
control over the price of its product? product with another monopolized product
( a ) Monopoly (b) Entry of new Firms is possible to produce
( b ) Perfect competition the same product
( c ) Monopolistic competition (c) The amount of output produced is very
( d ) Oligopoly small
8. A Monopoly will not be a Perfect Monopoly, if
cross elasticity of demand of the related goods is 14. Under Monopoly, each Firm's control over price
(a) High is —
(b) Low a) Nil
(c) One b) Full and Absolute
(d) Zero c) Subject to Competing Firms' Strategies
d) None of the above.
9. Which of the following best describes
Monopoly? 15. In case of a profit maximizing Monopolist, what
(a) An indisputable market leader in an industry point determines the Selling Price?
(b) Only a single buyer in the market (a) Point where marginal cost equals average
(c) A single seller with large control over the price revenue
in the industry (b) Point where average cost equals marginal
(d) Only a single seller with complete control over revenue
the industry (c) Point where average cost equals average
10. In India, Monopoly exists in the following revenue
industry — (d) Point where marginal cost equals marginal
(a) Courier Services revenue
(b) Internet Services providing industry
(c) Rail Transportation 16. Under Monopoly, Price Elasticity of Demand is
(d) Toilet Soaps Industry (a) Nil
(b) Less Elastic
11. A Market in which a Single Seller is required for (c) More Elastic
efficient production is called — (d) Infinity
(a) Regulated Industry
(b) Natural Monopoly 17. Under Monopoly, the Firm's Demand Curve is
(c) Legal Monopoly (a) Horizontal Line, parallel to X Axis
(d) Contestable Market (b) Vertical Line, parallel to Y Axis
(c) Negatively Sloped
12. If the Electricity Market is a Natural Monopoly, (d) Kinked.
it is preferred to have a single producer rather
than several small producers because — 18. The Demand Curve facing an industrial Firm
(a) Marginal Cost is maximized under Monopoly is a/an —
(b) Marginal Revenue is maximized (a) Horizontal Straight Line
(c) Average Total Cost is minimized (b) Indeterminate
(d) Profits are maximized (c) Downward Sloping
(d) Upward Sloping

(a) Monopoly
19, A Monopolist who faces a negatively sloped (b) Perfect competition
demand curve operates in the region where the (c) Monopolistic competition
elasticity of demand is — (d) Oligopoly
(a) Less than one
(b) Equal to one 26. Under Monopoly, in the long—run, a Firm —
(c) Greater than one (a) will not have excess capacity.
(d) Between zero and one (b) may have excess capacity
(c) has no capacity at all
20. In Monopoly, the relationship between (d) will leave the industry.
Average and Marginal Revenue Curves is as
follows: 27. Under Monopoly, in the long—run, a Firm —
(a) AR Curve lies above the MR Curve. (a) will always be a Optimal Firm.
(b) AR Curve coincides with the MR Curve. (b) will never be an Optimal Firm.
(c) AR Curve lies below the MR Curve. (c) may or may not be an Optimal Firm.
(d) AR Curve is parallel to the MR Curve. (d) will leave the industry.
21. Under Monopoly, a Firm can earn in the 28. Monopolies are allocatively inefficient because
long-run. (a) they restrict the output to keep the price
(a) Normal Profits only higher than under Perfect Competition.
(b) Super Normal Profits (b) they charge a price higher than the
(c) Either (a) or (b) Marginal Cost.
(d) Losses (c) both (a) and (b) are correct.
22. In long-run a monopolist always earn (d) both (a) and (b) are incorrect.
profits
(a) Normal 29. The degree of Monopoly Power is measured in
(b) Abnormal terms of difference between —
(c) Zero profit (a) Marginal Cost and Price
(d) Loss (b) Average Cost and Average Revenue
(c) Marginal Cost and Average Cost
23. In the short run, the Monopolist — (d) Marginal Revenue and Average Cost
(a) Earns Normal Profits
(b) Earns Super Normal Profits 30. Which of these is not a feature of Monopoly? .
(c) Incurs losses (a) Many Sellers
(d) Any of these (b) Many Buyers
(c) No substitutes
24. A Monopoly Producer usually earns (d) Firm = Industry
even in the long run.
(a) Super Normal Profits 31. Which of these is not a feature of Monopoly?
(b) Only Normal Profits (a) Single Seller
(c) Losses (b) Firm = Industry
(d) None of the above (c) No substitutes
(d) Elasticity of Demand = 0
25. Abnormal profits exists in the long run only
under 32. Which of these does not apply to Monopoly?

7.31
(a) Single Seller (d) None of the above

(b) Firm = Industry
(c) Free Entry and Exit of Firms 39. Price Elasticity of Demand for Monopolist's
(d) No substitutes Product is
(a) Infinity
33. Which of the following is not the characteristic (b) More than one
of Monopoly? (c) Less than one.
(a) Many Buyers (d) Zero
(b) Heterogeneous Products
(c) Free Entry of new Firms 40. Under Monopoly, in the short—run, the Firm
(d) Both b & c can never make Losses. This statement is —
(a) True
34. Which of the following features is not (b) False
associated with a Monopoly market structure? (c) Partially True
(a) There is only one seller in the market (d) None of the above
(b) There are no close substitutes for the product
(c) There are barriers to entry 41. In the case of Monopoly —
(d) There are no close complements for the (a) MR Curve cannot be defined
product (b) AR Curve cannot be defined
(c) Short Run Supply Curve cannot be defined
35. All of the following are characteristics of a (d) None of the above
Monopoly except —
(a) There is a single Firm 42. Under monopoly which of the following are
(b) The Firm is a Price Taker correct—
(c) The existence of some advertising (a) AR&MR both are downward sloping
(d) The Firm produces a unique product (b) MR lies half way between AR & Y axis
(c) MR can be zero or negative
36. In Monopoly Market, there is a — (d) all of the above
(a) Single Seller
(b) Single Buyer 43. Equilibrium Price of a Monopolist is —
(c) Both (a) and (b) (a) Less than Marginal Cost
(d) Neither(a) and (b) (b) Equal to Marginal Cost
(c) Equal to Marginal Revenue
37. Economics of Scale allows the Monopolist to set (d) More than Marginal Cost
a _______ price than any new entrant.
(a) Higher 44. Under Monopoly, the Firm can earn ____ in
(b) Lower the short—run.
(c) Economics of scale does not influence the (a) Normal Profits only
price (b) Super Normal Profits
(d) At the existing market rate (c) Losses
(d) All of the above.
38. In Monopoly Market, the product has —
(a) Perfect Substitutes 45. A Monopolist is able to maximize his profits
(b) No Close Substitutes when —
(c) the same feature as Giffen Goods (a) His output is maximum

(b) He charges a high price 51. Under Monopoly, in the short—run, the
(c) His average cost is minimum condition for shut—down is —
(d) His Marginal Cost is equal to Marginal (a) AR < AC
Revenue (b) AR > AC
(c) AR > AVC
46. If Marginal Revenue exceeds Marginal Cost, a (d) AR < AVC
Monopolist should —
(a) increase output. 52. If a Monopolist is operating at a production level
(b) decrease output. where Marginal Cost is 10 and Marginal Revenue is
(c) keep output the same because profits are 25, what action you would suggest to him?
maximized when Marginal Revenue exceeds (a) To reduce the price to 20
Marginal Cost. (b) To increase the costs by ' 4
(d) raise the price. (c) To increase output till Marginal Revenue
would equal Marginal Cost
47. Under Monopoly, in the short—run, the (d) To stop production
condition AR = MR = MC = AC, means that the
Firm is earning — 53. When different prices are charged by the
(a) Normal Profits only Producer, from different customers, it is called
(b) Super Normal Profits (a) Demand Supply Equilibrium
(c) Losses (b) Price Discrimination
(d) All of the above. (c) Optimum Price Search
48. Under Monopoly, in the short—run, if AR > (d) Profiteering
AC at the point when MC = MR, it means that the 54. A Monopolist who is selling in two markets in
Firm — which demand is not identical will be unable to
(a) Normal Profits only maximize his profits unless he —
(b) Super Normal Profits (a) Sells below Costs of Production in both
(c) Losses markets.
(d) All of the above. (b) Practices Price Discrimination.
(c) Equates the volume of sales in both
49. Under Monopoly, in the short—run, if AR < AC markets.
at the point when MC = MR, it means that the Firm (d) Equates Marginal Costs with Marginal
— Revenue in one market only.
(a) Normal Profits only
(b) Super Normal Profits 55. Price Discrimination in a Monopoly is
(c) Losses described as —
(d) All of the above. (a) Same product selling at different prices since
the costs of production are different
50. Under Monopoly, in the short—run, the Firm (b) Same product selling at different prices
will never shut—down. This statement is — though the costs of production are same
(a) True (c) Different products having same price though
(b) False costs of production are same
(c) Partially True (d) Different products having different prices since
(d) None of the above costs of production are different

56. Objectives of price discrimination in (d) All of the above

international market is—
(a) To capture foreign markets 62. Which of the following is a condition which
(b) To dispose of surplus stock makes Price Discrimination possible?
(c) To earn maximum profit (a) The market must be divided into sub
(d) All of the these markets with different price elasticities
(b) There has to be an effective separation of
57. Price discrimination will not be profitable if the submarkets
elasticity of demand is in different markets. (c) Size of the submarkets should be very
( a ) Uniform large
( b ) Different (d) Both a and b above
( c ) Less
( d ) Zero 63. Barriers to entry like_________allows the
Monopolist to charge a price much below then the
58. Discriminating Monopoly implies that the price of new entrant, thereby driving the new
Monopolist charges different prices for his entrant out of business.
commodity — ( a) Economics of Scale
(a) From different groups of consumers ( b) Product Differentiation
(b) For different uses (c ) Price Discrimination
(c) At different places ( d) High Quality Product
64. Why is first degree price discrimination termed
59. Which of these is not a pre—requisite for Price as the extreme form of price discrimination —
Discrimination? (a) All the Firms in the industry undertake
(a) Seller's Control over the supply of his product price discrimination
(b) Market Segmentation (b) Firms in the industry discriminate in price
(c) Differing Elasticity in various market for almost all the products they are producing
segments (c) Firms earn the least profit in this type of
(d) Different versions of the same product discrimination; they are just able to cover the cost
(d) In this type of discrimination Firms charge
60. The price discrimination under monopoly will the consumers the maximum price
be possible under which of the following conditions?
(a) The seller has no control over the supply of 65. Which of the following statements in not true
his product about a discriminating Monopolist?
(b) The market has the same conditions all over (a) He operates in more than one market
(c) The price elasticity of demand is different in (b) He makes more profit because he
different markets discriminates
(d) The price elasticity of demand is uniform (c) He maximizes his profits in each market
(d) He charges different prices in each market
61. Which of these is a pre—requisite for Price
Discrimination? 66. Under Price Discrimination, the Producer
(a) Divisibility of Market into segments Firm can charge higher prices from a market, if
(b) No scope of re—sale between segments Price Elasticity
(c) Differing Elasticity in various market (e) —
segments (a) e =1

7.33
(b) e <1 ( b) Rising and declining Cost Curves

(c) e>1 (c ) Different Elasticities of Demand
(d) e =0 ( d) Equal Elasticities of Demand
67. Under Price Discrimination, the Producer 73. Discriminating Monopolist divides the total
Firm may charge lower prices from a market, if production in two markets in a way that —
Price Elasticity (e) (a) MR earned in market with higher
(a) e=1 elasticity of demand is greater than the other
(b) e<1 with lower elasticity of demand
(c) e>1 (b) MR earned in market with lower
(d) e=0 elasticity of demand is greater than the other
(c) MR earned in each market is the same
68. For price discrimination to be successful, the (d) MR earned in each market is
elasticity of demand for the commodity in the two maximum
markets, should be:
( a ) Same Questions 74 to 76 are based on the Figure
( b ) different
( c ) Constant
( d ) Zero
69. Price Discrimination is not possible if the

market is an indivisible whole of Buyers. This
statement is —
(a) True
(b) False
(c) Partially True
70. For practicing Price Discrimination, the Seller

should be able to divide his market into two or more
sub—markets. The statement is — Figure represents a:
(a) True (a) Perfectly competitive firm.
(b) False (b) Perfectly competitive industry.
(c) Partially True (c) Monopolist
(d) None of the above (d) None of the above.
75. In figure , the firm's marginal revenue curve is
71. Price Discrimination is possible — curve:
(a) Only under Monopoly situation (a) E.
(b) Under any market form (b) A
(c) Only under Oligopoly (c) F
(d) Only under Perfect Competition (d) B
72. Discriminating Monopoly is possible if two 76. In figure , curve E is the firm's:
markets have ( a) Marginal cost curve
( a) Rising Cost Curves ( b) Average cost curve
7.34

(c ) Demand curve. 5. Under Monopolistic Competition, each Firm is

( d) Marginal revenue curve a_________
(a) Price Maker
77. Which of the following is false with reference ( b) Price Taker
to first—degree price discrimination? (c) Price Maker for its own product.
(a) The Monopolist will be able to extract ( d) All of the above.
entire Consumer's Surplus
(b) The price of each unit will be different 6. Under Monopolistic Competition, each Firm's
(c) By following first degree price control over price is —
discrimination, the Monopolist will earn higher (a) Nil
profits than he would have earned by adopting a (b) Full and Absolute
single price (c) Reasonable
(d) The price of the first unit will be less than (d) None of the above.
that of the subsequent units
7. Under Monopolistic Competition, Price
Elasticity of Demand is —
Monopolistic Competition (a) Nil
1. Under Monopolistic Competition, there are (b) Less Elastic
_______Sellers. (c) More Elastic
(a) Many (d) Infinity
(b) Only one
(c) A Few 8. Under Monopolistic Competition, the Firm's
(d) No Demand Curve is —
(a) Horizontal Line, parallel to X Axis
2. Under Monopolistic Competition, the product is (b) Vertical Line, parallel to Y Axis
(a) Differentiated (c) Negatively Sloped
(b) Homogeneous (d) Kinked.
(c) Necessity Goods

(d) Always Intangible 9. Product Differentiation in a Monopolistic
Competition could lead to —
3. A market structure in which many firms sell (a) Horizontal Demand Curve
product that are similar, but not identical. (b) Downward Sloping Demand Curve
(a) Monopolistic Competition (c) Vertical Demand Curve
(b) Monopoly (d) Downward sloping supply curve
(c) Perfect Competition
(d) Oligopoly 10. Under Monopolistic Competition, a Firm can
earn _______ in the long—run.
4. Selling outlay is an essential part of which of ( a) Normal Profits only
the following market situation ( b) Super Normal Profits
(a) Monopolistic Competition (c ) Losses
(b) Perfect Competition ( d) All of the above.
(c) Monopoly
(d) Pure Competition 11. Under Monopolistic Competition, in the long—
run, a Firm
(a) will not have excess capacity.

(b) may have excess capacity

(c) has no capacity at all 18. Which of the following is not a feature of
(d) will leave the industry. Monopolistic Competition?
(a) Large Number of Sellers
12. Which of the following markets has the (b) Product differentiation
concept of group equilibrium in long—run? (c) Non—Price competition
(a) Monopoly (d) None of these
(b) Perfect competition
(c) Monopolistic competition 19. Which of the following is not a characteristic
(d) Oligopoly feature of Monopolistic Competition?
(a) Many Buyers and Sellers
13. 'Excess Capacity' is the essential characteristic (b) Identical Products
of the Firm in the market form of — (c) Easy entry and exit of Firms
(a) Monopoly (d) Firms take other Firms' prices as given
(b) Perfect Competition
(c) Monopolistic Competition 20. Which of the following is not a characteristic of
(d) Oligopoly Monopolistic Competition?
(a) Ease of entry into the industry
14. Under Monopolistic Competition, in the (b) Product Differentiation
long—run, a Firm — (c) Relatively large number of sellers
(a) will always be a Optimal Firm. (d) Homogenous products
(b) will never be an Optimal Firm.
(c) may or may not be an Optimal Firm. 21. Which of these applies to Monopolistic
(d) will leave the industry. Competition?
(a) Price Competition
15. Non-price competition in popular sense called ( b) Restrictions in entry /exit
— (c) Large Number of Sellers
(a) Monopoly market ( d) Homogeneous Product
(b) Oligopoly market
(c) Monopolistic competition 22, Under Monopolistic Competition, each Seller
(d) Perfect competition tries to develop Brand Loyalty for his product. This
statement is —
16. Which of these does not apply to Monopolistic (a) True
Competition? (b) False
(a) Large Number of Buyers (c) Partially True
(b) Large Number of Sellers (d) None of the above
(c) Product Differentiation
(d) Price Competition 23. The sale of branded articles is common in a
situation of
17. Which of these does not apply to Monopolistic (a) Excess Capacity.
Competition? ( b) Monopolistic Competition.
(a) Product Differentiation (c) Monopoly.
(b) Free entry /exit ( d) Pure Competition.
(c) Large Number of Buyers
(d) Single Seller

24. A Firm under Monopolistic Competition ( b) Super Normal Profits

advertises — (c ) Losses
(a) to compete successfully with the rival ( d) All of the above.
Firms
(b) to lower cost of production 30. In short run, a Firm in Monopolistic
(c) to increase sales and profit Competition —
(d) because it cannot raise price ( a) always earns profits
( b) incurs losses
25. Through more advertising, a monopolistically (c ) earns normal profit only
competitive Firm has successfully created more ( d) may earn normal profit, super normal
demand for its product. It would have resulted in profit or incur losses
shifting of —
(a) AC Curve upward 31. In long—run, all Firms in Monopolistic
(b) MR Curve to the left Competition —
(c) AC Curve upward and MR curve to the (a) earn super normal profits
right (b) earn normal profits
(d) AC Curve upward and MR curve to the (c) incur losses
right (d) may earn super normal profit, normal
profit or in incur losses
26. Under Monopolistic Competition, Price
Discrimination is not possible at all. This 32. In the short run equilibrium of a Firm in
statement is — Monopolistic Competition, which Curve is U
(a) True shaped?
(b) False ( a ) AR
(c) Partially True ( b ) AC
(d) None of the above ( c ) MR
( d ) MC
27. Which of these does not apply to Monopolistic 33. Under Monopolistic Competition, in the
Competition? short—run, the condition AR = MR = MC = AC,
(a) Aggressive Advertising and Publicity means that the Firm is earning —
(b) Product improvement and Development ( a) Normal Profits only
(c) Price Competition ( b) Super Normal Profits
(d) Efficient after—sales service (c ) Losses
( d) All of the above.
28. Under Monopolistic Competition, in the
short—run, the Firm can never make Losses. 34. Under Monopolistic Competition, in the
This statement is — short—run, if AR > AC at the point when MC =
(a) True MR, it means that the Firm —
(b) False ( a) Normal Profits only
(c) Partially True ( b) Super Normal Profits
(d) None of the above ( c ) Losses
( d ) All of the above.
29. Under Monopolistic Competition, the Firm
can earn _________in the short—run.
( a) Normal Profits only

35. Under Monopolistic Competition, in the 41. In the long—run, Industry Equilibrium is
short—run, if AR < AC at the point when MC = achieved in Monopolistic Competition only if LAC
MR, it means that the Firm — = LMC. This statement is —
( a) Normal Profits only (a) True
( b) Super Normal Profits (b) False
(c ) Losses (c) Partially True
( d) All of the above. (d) None of the above
36. Under Monopolistic Competition, in the 42. In the long—run, Industry Equilibrium is
short—run, the Firm will never shut—down. This achieved in Monopolistic Competition only at the
statement is — lowest point of LAC Curve. This statement is
(a) True (a) True
(b) False (b) False
(c) Partially True (c) Partially True
(d) None of the above (d) None of the above
37. Under Monopolistic Competition, in the 43. In Monopolistic Competition, a Firm is in long
short—run, the condition for shut—down is — run equilibrium —
(a) AR < AC (a) at the minimum point of the LAC Curve.
(b) AR > AC (b) in the declining segment of the LAC Curve.
(c) AR > AVC (c) In the rising segment of the LAC Curve.
(d) AR < AVC (d) when price is equal to Marginal Cost.
38. In Monopolistic Competition, the 44. Under Monopolistic Competition, in the long—
long—run equilibrium price will be equal to — run, Output is produced at —
(a) Marginal Revenue (a) minimum feasible cost
(b) Average Cost (b) maximum cost
(c) Marginal Cost (c) optimal, and not necessarily minimum
(d) Both (a) and (c) cost
39. Under Monopolistic Competition, in the (d) zero cost
long—run, if MC = MR and LAC = LAR, then the 45. Under Monopolistic Competition, in the long—
industry is said to be — run, resources —
(a) Growing ( a) will be fully used
(b) in troubled times ( b) may be partially used
(c) in Equilibrium (c ) may not be used at all
(d) inefficient ( d) will not be required at all
40. In the long—run, Industry Equilibrium is 46. Monopolistic Competition differs from Perfect
achieved if MC = MR and LAC = LAR. This Competition primarily because —
condition is applicable for — (a) In Monopolistic Competition, Firms can
( a) Perfect Competition differentiate their products
( b) Monopoly (b) In Perfect Competition, Firms can differentiate
(c ) Monopolistic Competition their products
( d) Oligopoly. (c) In Monopolistic Competition, entry into the
industry is blocked

(d) In Monopolistic Competition, there are Brighter than White 7.4

relatively few barriers to entry Total
Ltd 100.0
47. The long—run equilibrium outcomes in ( a) Perfect Competition

Monopolistic competition and Perfect Competition ( b) Monopolistic Competition
are similar, because in both market structures — (c ) Oligopoly
(a) The efficient output level will be produced ( d) Monopoly
in the long run
(b) Firms will be producing at minimum 5. One characteristic not typical of Oligopolistic
average cost Industry is
(c) Firms will only earn a normal profit (a) Horizontal Demand Curve
(d) Firms realize all economies of scale (b) Too much importance to Non—Price
Competition
(c) Price Stickiness
Oligopoly (d) A small number of Firms in the industry
1. Under Oligopoly, there are Sellers.
(a) Many 6. Under Oligopoly, the product is —
(b) Only one (a) Differentiated
(c) A Few (b) Homogeneous
(d) No (c) Necessity Goods
(d) Always Intangible
2. ________is a situation is which a firm bases its
market policy on part of the expected behavior of 7. Under Oligopoly, each Firm's control over price
a few close rivals- is —
(a) monopoly (a) Nil
(b) oligopoly (b) Full and Absolute
(c) perfect competition (c) Subject to Competing Firms' Strategies
(d) monopolish (d) None of the above.
3. Which one of the following is the best example 8. Under Oligopoly, Price Elasticity of Demand is
of agreement between Oligopolists? (a) Nil
(a) GATT (b) Less Elastic
(b) OPEC (c) More Elastic
(c) WTO (d) Infinity
(d) UNIDO
9. Under Oligopoly, the Firm's Demand Curve is
4, If Firms in the Toothpaste Industry have the —
following market shares, which market structure (a) Horizontal Line, parallel to X Axis
would best describe the industry? (b) Vertical Line, parallel to Y Axis
Firm Market (c) Negatively Sloped
White Shine Ltd 29.8
Share% (d) Kinked.
White Teeth Ltd 18.7
More White Teeth 14.3
10. Oligopoly is the market from in which there
Sure
Ltd Health Ltd 11.6
Bright Teeth Ltd 9.4 are
Dental Care Ltd 8.8 (a) Many Sellers and many Buyers
(b) One Seller and many Buyers

(c) Few Sellers and many Buyers (a) Too much importance to Non—Price
(d) None of the above Competition
(b) Price Leadership
11. Which of the following most closely (c) Horizontal Demand Curve
approximates the definition of an Oligopoly? (d) A small number of Firms in the industry
(a) Tobacco Industry
(b) Vehicle manufacturers in India 17. Which of these applies to Oligopoly?
(c) Rice Producers (a) A Few Sellers
(d) Readymade Garments units in a city (b) Group Behaviour between Sellers
(c) Non—Price Competition
12. Pure Oligopoly is one where — (d) All the above
(a) There are many sellers producing
homogeneous product 18. Duopoly is a specific form where are —
(b) There are many sellers producing (a) No Sellers at all
differentiated product (b) Only one Seller
(c) There are few sellers producing (c) Two Sellers
homogeneous product (d) Large Number of Sellers
(d) There are few sellers producing
differentiated product 19. The American Economist Sweezy developed
the —
13. Oligopolistic Industries are characterized by (a) Production Possibility Curve concept
(a) A few dominant Firms and substantial (b) Diminishing Marginal Utility Theory
barriers to entry (c) Kinked Demand Curve Theory
(b) A few large Firms and no entry barriers (d) Price Discrimination Theory
(c) A large number of small Firms and no
entry barriers 20. When an Oligopolistic Firm changes its price,
(d) One dominant Firm and low entry its rival Firms —
barriers (a) will retaliate or react and change their
prices
14. In which of the following, a Kinked Demand (b) will not react at all
Curve can be seen in a Firm? (c) will exit the market
(a) Monopolistic competition (d) will appeal to the Government
(b) Monopoly
(c) Duopoly 21. A Price War in an Oligopoly refers to —
(d) Oligopoly (a) Successive and continued price cuts by
the Firms to increase sales and revenues
15. Which of these does not apply to Oligopoly? (b) Free gift offers by all Firms on a
( a) A Few Sellers competitive basis
( b) Inter—dependence between Sellers (c) Flooding the market with its goods by one
(c ) Only one Buyer Firm leading to price reduction by others
( d) Group Behaviour between Sellers (d) Increase in the price by one Firm and
other Firms following in a reverse way by
16. One characteristic not typical of Oligopolistic decreasing their prices
industry is

22. A Firm under ________ cannot have sure and

definite Demand Curve. 29. As per Kinked Demand Curve Theory of
(a) Perfect Competition Oligopoly, the demand above the Kink is —
(b) Monopoly (a) more elastic
(c) Monopolistic Competition (b) less elastic
(d) Oligopoly. (c) unit elastic
(d) zero elastic
23. Price Leadership is form of —
(a) Monopolistic Competition 30. As per Kinked Demand Curve Theory of
(b) Monopoly Oligopoly, the demand below the Kink is —
(c) Non—Collusive Oligopoly (a) more elastic
(d) Perfect Competition (b) less elastic
(c) unit elastic
24. Under Oligopoly, if one Firm reduces its (d) zero elastic
prices, the other Firms will generally —
(a) reduce their prices 31. The upper part of kinked demand curve is —
(b) increase their prices ( a ) Elastic
(c) not react at all ( b ) Inelastic
(d) exit the market. ( c ) Perfectly Elastic
( d ) Unitary Elastic
25. Under Oligopoly, if one Firm reduces its
prices, the other Firms will generally — 32. What does the Kinked Demand Curve
(a) reduce their prices explain?
(b) increase their prices (a) Price Differentiation
(c) maintain their prices (b) Other than Price Competition
(d) exit the market. (c) Rivalry reactions in an Oligopoly
26. Kinked demand curve is related to—
( a ) Oligopoly 33. A Firm having a Kinked Demand Curve
( b ) Perfect indicates that
( c ) Monopoly (a) If the Firm increases the price, competitive
( d ) Monopolistic competition Firms reduce the price
(b) If the Firm increases the price, competitive
27. Kinked demand curve is found in: Firms also increase the price
(a) Monopolistic (c) If the Firm reduces the price, competitive
(b) Perfectly Competitive firm Firms do not reduce the price
(c) Perfectly competitive industry (d) If the Firm increases the price, competitive
(d) None of the above Firm do not increase the price
28. As per Kinked Demand Curve Theory of 34. The Kinked Demand Hypothesis is designed
Oligopoly, the Kink is formed at — to explain in the context of Oligopoly —
(a) Prevailing Price (a) Price and Output Determination
(b) Higher than Prevailing Price (b) Price Rigidity
(c) Lower than Prevailing Price (c) Price Leadership
(d) Origin (d) Collusion among Rivals

35. The Kinked Demand Curve model assumes (a) recognize their independence
that price elasticity of demand — (b) do not collude
(a) Is higher for a price increase than for a (c) tend to keep prices constant
price decrease (d) all of the above
(b) Is lower for a price increase than for a
price increase 41. In Oligopoly, why it difficult to determine the
(c) Is perfectly elastic for a price increase equilibrium price and output?
perfectly inelastic for a price decrease (a) All the Firms take their independent
(d) Is perfectly inelastic for a price increase decisions
and perfectly elastic for a price increase (b) Firms are interdependent making it
difficult to specify the particular reaction of the
36. The demand curve of an oligopolist is rivals
(a) Determinate (c) Very few Firms exist in the market
( b) Indeterminate (d) A large number of Firms exist in the
(c) Circular market
( d) Vertical
42. If the Demand Curve confronting an
37. Kinky demand curve model explains the individual Firm is perfectly elastic then
market situation known as (a) The Firm is a Price Taker
(a) Pure Oligopoly (b) The Firm cannot influence the Price
(b) Collusive oligopoly (c) The Firm's Marginal Revenue Curve
(c) Differentiated Oligopoly coincides with Average Revenue Curve
(d) Price rigidity (d) All of the above
38. Kinked DD curve under oligopoly is designed 43. Kinked demand curve of the Oligopoly
to show indicates
(a) Price & output I. If one firm decreases price other firms also
(b) Price rigidity decreases the price
(c) Price & Leadership II. If one firm increases price other firms also
(d) Collusion among rivals increases the price
III. If one firm decreases the price other firms does
39. The Kinked Demand Curve model of Oligopoly not decrease the price.
assumes that — IV. If one firm increases the price other firms does
(a) Response to a price increase is less than not increase the price.
the response to a price decrease ( a ) Only I
(b) Response to a price increase is more than ( b ) II and IV
the response to a price decrease ( c ) I and IV
(c) Elasticity of demand is constant ( d ) II and III
regardless of whether price increases or decreases
(d) Elasticity of demand is perfectly elastic if
price increases and perfectly inelastic if price
decreases.
40. In both the Chamberlin and Kinked Demand

Curve models, the Oligopolists —


Business Cycle
1. The term business cycle refers to (d) Peak

(a) the ups and downs in production of
8. The trough of a business cycle occurs
commodities
when ________hits its lowest point.
(b) the fluctuating levels of economic activity
(a) inflation in the economy
over a period of time
(b) the money supply
(c) decline in economic activities over
(c) aggregate economic activity
prolonged period of time
(d) the unemployment rate
(d) increasing unemployment rate and
diminishing rate of savings
9. The lowest point in the business cycle is
2. When does an economic expansion occur referred to as the
in the business cycle? (a) Expansion.
(a) At the peak of the business cycle (b) Boom.
(b) At the trough of the business cycle (c) Pe ak.
(c) Between the peak and trough (d) Trough.
(d) Between the trough and peak
10. Even with lower rate of interest, demand for
3. Increasing Prosperity and High standards of credit declines in
living are the characteristics of (a) Expansion Phase
(a) Peak (b) P e a k
(b) Contraction (c) Contraction Phase
( c ) Expansion (d) Depression
(d) Trough
11. Which of the following statements is true?
4. The end of expansion is termed as — (a) An Economy grows endlessly
(a)Peak (b) An Economy Contracts endlessly
( b ) Contraction (c) It is easy to predict turning points of
( c ) Trough Business Cycle
( d ) None of the above (d) None of the above
5. The beginning of recession is 12. Which of the following statement is not

(a) Peak correct?
(b) Trough (a) Business Cycles are periodical
( c ) Contraction (b) Business Cycles are regular
(d) Expansion (c) Business Cycles vary in intensity
(d) Business Cycles vary in length
6. A significant decline in general economic
activity extending over a period of time is 13. A leading indicator is
(a) business cycle (a) a variable that tends to move along
(b) contraction phase with the level of economic activity
(c) recession (b) a variable that tends to move in
(d) recovery advance of aggregate economic activity
(c) a variable that tends to move consequent
7. Severe form of recession is on the level of aggregate economic
(a) Contraction activity
(b) Depression (d) None of the above
(c) Expansion

Business Cycle
14. A variable that tends to move later than 20. Which of the following does not occur
aggregate economic activity is called during an expansion?
(a) a leading variable. (a) Consumer purchases of all types of
(b) a coincident variable. goods tend to increase.
(c) a lagging variable. (b) Employment increases as demand for
(d) a cyclical variable. labour rises.
(c) Business profits and business confidence
15. Changes in housing interest rate is a tend to increase
(a) a leading indicator (d) None of the above.
(b) a coincident indicator
(c) a lagging indicator 21. Which of the following best describes a
(d) a cyclical indicator typical business cycle?
(a) Economic expansions are followed by
16. Unemployment is a economic contractions.
(a) a leading indicator (b) Inflation is followed by rising income
(b) a coincident indicator and unemployment.
(c) a lagging indicator (c) Economic expansions are followed by
(d) a cyclical indicator economic growth and development.
(d) Stagflation is followed by inflationary
17. GDP is a
economic growth.
(a) a leading indicator
(b) a coincident indicator 22. During recession, the unemploymentrate
(c) a lagging indicator __________ and output________
(d) a cyclical indicator (a) Rises; falls
(b) Rises; rises
18. Industries that are extremely sensitive to
(c) Falls; rises
the business cycle are the
(d) Falls; falls
(a) Durable goods and service sectors.
(b) Non-durable goods and service
23. The four phases of the business cycle are
sectors.
(a) peak, recession, trough, and boom
(c) Capital goods and non-durable goods
(b) peak, depression, trough, and boom
sectors.
(c) peak, recession, trough, and
(d) Capital goods and durable goods
recovery
sectors.
(d) peak, depression, bust, and boom
19. A decrease in government spending would 24. Leading economic indicators

cause (a) are used to forecast probable shifts in
(a) the aggregate demand curve to shift to economic policies
the right. (b) are generally used to forecast
(b) the aggregate demand curve to shift to economic fluctuations
the left. (c) are indicators of stock prices existing
(c) a movement down and to the right along in an economy
the aggregate demand curve. (d) are indicators of probable recession
(d) a movement up and to the left along and depression
the aggregate demand curve.

Business Cycle
25. When aggregate economic activity is declining, (c) Investor confidence is adversely affected
the economy is said to be in and new investments may not be
(a) Contraction. forthcoming
(b) an expansion. (d) Increase in the price of inputs due to
(c) a trough. increased demand for inputs
(d) a turning point.
30. The different phases of a business cycle
26. Peaks and troughs of the business cycle are (a) Do not have the same length and
known collectively as severity
(a) Volatility. (b) expansion phase always last more than
(b) Turning points. ten years
(c) Equilibrium points. (c) last many years and are difficult to get
(d) Real business cycle events. over in short periods
27. The most probable outcome of an increase in
the money supply is 31. Which of the following is not an example of
(a) interest rates to rise, investment spending coincident indicator?
to rise, and aggregate demand to rise (a) Industrial production
(b) interest rates to rise, investment spending (b) inflation
to fall, and aggregate demand to fall (c) Retail sales
(c) interest rates to fall, investment spending (d) New orders for plant and equipment
to rise, and aggregate demand to rise 32. According to _________ trade cycle occurs
(d) interest rates to fall, investment spending due to onset of innovations.
to fall, and aggregate demand to fall a) Hawtrey
b) Adam Smith
28. Which of the following is not a characteristic of
c) J M Keynes
business cycles
d) Schum peter
(a) Business cycles have serious
33. According to Keynes, Fluctuations
consequences on the well-being of the
activity are due to fluctuations in
society.
a) aggregate effective demand
(b) Business cycles occur periodically,
b) Price
although they do not exhibit the same
c) Supply of resources
regularity.
d) None of the above
(c) Business cycles have uniform
characteristics and causes.
(d) Business cycles arecontagious and
unpredictable. 1 2 3 4 5 6 7 8 9 10
b d C a c c b c d d
29. Economic recession shares all of these
characteristics except. 11 12 13 14 15 16 17 18 19 20
d b b c a c b b d d
(a) Fall in the levels of investment,
employment
21 22 23 24 25 26 27 28 29 30
(b) Incomes of wage and interest earners a a c b a b c c d a
gradually decline resulting in decreased
demand for goods and services 31 32 33
d d d

Business Cycle

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INDEX

SR Name Page Note

2 Utility Analysis and 2.1- 2.19

3 Demand Analysis 3.1- 3.31

4 Supply Analysis 4.1- 4.17

5 Production Concepts 5.1- 5.36

6 Cost and Revenue 6.1-6.36

7 Market Forms and 7.1- 7.30

Basics of Business Economics

(b) Not all wants can be satisfied (c) Old

18. Economic theories are….… 24. Pragmatic approach means -

(c) Both (a) and (b)

28. Normative science is- 35. The study of behavior of consumers in

(b) Cost analysis (b) There are three types of economy-

(A) Demand, supply 1. The Central Economic problem is that

(d) Cannot be commented at all

29. For analysing ownership and (B) Mixed economy

(B) Competition among buyers to of a central planning authority and

54. In Socialist economy, the concept of market economy while excluding

(C) How are goods produced? (D) All of the above

2. Utility - 9. As per the cardinal approach-utility

4. Utility is a……….. aspect and differs Cardinal Approach- Basics

6. The concept of utility is ethically 12. Marginal utility approach to demand

CA. Aditya Sharma Page 2.1

CA. Aditya Sharma Page 2.2

31. Marginal utility- 37. The Law of Diminishing Marginal

CA. Aditya Sharma Page 2.3

CA. Aditya Sharma Page 2.4

CA. Aditya Sharma Page 2.5

CA. Aditya Sharma Page 2.6

Law of Equi-Marginal utility 86. Law of Equi-marginal utility applies

CA. Aditya Sharma Page 2.7

CA. Aditya Sharma Page 2.8

CA. Aditya Sharma Page 2.9

CA. Aditya Sharma Page 2.10

125. If the prices of ice-cream and chocolate

CA. Aditya Sharma Page 2.11

(c) MM’ 19. A 65. D 111. A

1. A 47. C 93. C ∴ MU5= TU 5 – TU 4

CA. Aditya Sharma Page 2.12

CA. Aditya Sharma Page 2.13

CA. Aditya Sharma Page 2.14

20. Indifference curve – 27. Which of the following is not a feature

25. Indifference curve is- 31. If an indifference curve is L shaped,

CA. Aditya Sharma Page 2.15

CA. Aditya Sharma Page 2.16

CA. Aditya Sharma Page 2.17

CA. Aditya Sharma Page 2.18

CA. Aditya Sharma Page 2.19

(d) Neither (a) nor (b) (b) MarketDemand

29. Market Demand is the sum total of —

30. is the sum total demand of all individuals in

31. If A = Household Demand and B = Market

(d) Rise in the supply of Tea over a period of time

Both (ii) and (iv) above

35 The total effect of a price change of a

67 Giffen Goods are goods which —