Department of Law

B.Com. LL.B. (Hons) sem -II

Business Economics –II
Internal Question Bank
Academic year 2023-24
Unit – 1 Market Structure
True and False
1. A firm produce its output with the purpose of selling in the market. True
2. A monopolistically competitive firm cannot successfully maintain positive economic
profits in the long-run. True
3. A monopolistically competitive firm does not produce at its minimum ATC in the
long-run. True
4. A product market refers to a market where goods and commodities are bought and
sold. It is also known as commodity market. True
5. According to Stonier and Hauge, market means buyers and seller haven’t any close
touch with each other for particular commodity. False
6. An oligopoly firm faces a kinked demand curve on the assumption that if it decides
to raise its price, its rivals will not raise their prices, but if it lowers its price, they will
definitely react to its action and will lower their prices. True
7. Barriers to entry make it possible for monopolies to earn positive economic profits in
the long-run. True
8. Business fluctuations are traced to the divergence between natural and market rates
of interest. True
9. Excess capacity is a salient feature of equilibrium under monopolist firm. False
10. Firm in the perfect competition is price maker. False
11. In long run under perfect competitive market industry is earning super normal profit.
False
12. In monopoly the cross elasticity of demand between the product and other industries

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 are infinite. False
13. In perfect competition, there prevails one single price for the homogeneous
products monopolistic competition, there are different prices of differentiated
products. True
14. Informative Advertisement create an impression on the minds of the consumers
that the advertised product superior to that of the products of the rival firms. False
15. Market-sharing cartel is the agreement reached between the oligopolistic firms regarding
quota of output to be produced and sold by each of them at the agreed price. True
16. Monopolist faces downward sloping demand curve and sell only a limited quantity of
output at each price. True
17. Perfect competition is not included in the assumptions of Clark’s marginal productivity
of distribution. False
18. Positive relation between selling costs and the volume of sales secured by a firm. False
19. Price Discrimination can occur only if it is not possible to transfer any unit of the product
from one market to another market. True
20. Price discrimination is not possible due to preference or prejudices of the buyers. False
21. Price Discrimination is profitable only if elasticity of demand in both market is equality
elastic. False
22. Price elasticity of demand for individual firm in perfect competition is perfectly inelastic.
False
23. Price leader tends to keep the price stable and is usually keen to avoid price wars.
True
24. Price leadership is an easy method of determine price in monopolist market. False
25. Price leadership model explains the upward adjustment of prices in perfect
competitive markets. False
26. Price maker of Oligopoly market tends to keep the price stable and is usually keen
to avoid price wars. True
27. Prices of commodities are sticky or rigid under the monopolist. False

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28. Selling cost on the other hand, are those costs which are incurred to increase the
sale of the product. True
29. Selling costs affect the position and the shape of the demand curve. True
30. Supernormal profit refers to high proportion of gross profit. False
31. The Chamberlin solution can be explained both in terms of output adjustment and price
adjustment. True
32. The Cournot Model is an open model because it does not allow entry of firms.
True
33. The Cournot solution is realistic because it assumes zero cost of production. False
34. The kinked demand curve model was first used by Paul M. Sweezy in 1939.True
35. The modern market system is not characterised by the existence of imperfect
market. False
36. The price leader takes a long run point of view, which is he is willing to sacrifice only
short term benefits not for long-run benefits. False
Fill in blanks
1. A cartel is a collusive agreement among a number of firms that is designed to Restrict
output and raise prices.
2. A discriminating monopolist will charge a higher price from less elastic of customer
group.
3. A factor of production, whose supply is fixed in the short run, may get additional
earnings is Quasi rent.
4. Advertising and selling costs have a strategic importance in oligopoly firms.
5. Chamberlin criticised and rejected both the Cournot and Bertrand cases on the ground
that none of them conforms perfectly to the hypothesis that each seller acts so as to render
his profit a maximum.
6. Demand curve of the firm is in perfect competitive market is horizontal line or parallel
to x-axis.

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7. Demand curve of the firm is in perfect competitive market is horizontal line or parallel
to x-axis.
8. Demand for capital is inversely related to the rate of interest, and the demand schedule
for capital or investment curve slopes downward from left to right
9. Dumping is the best example local price discrimination.
10. Excess capacity is a salient feature of equilibrium under monopolistic
competition.
11. If one firm in a duopoly increases its production by one unit beyond the monopoly
output, that firm's profit increases, the other firm's profit decreases, and the total profit
of the duopoly decreases.
12. In economics, term market does not a particular place but the whole area where buyers
and seller of product are spread over whole town, region or country.
13. In monopoly market have unique product without close substitution.
14. In Oligopoly market of firm entry barriers due to product differentiation and by a few
firms dominating the market.
15. In Oligopoly market, entry of new firms has barriers due to product differentiation and
by a few firms dominating the market.
16. In oligopoly method is concerned with the maximization of joint profit is Collusive
model.
17. Market-sharing cartel is the agreement reached between the oligopolistic firms regarding
quota of output to be produced and sold by each of them at the agreed price.
18. Oligopoly is different from both perfect competition and monopoly.
19. Perfect cartels, has been quite rare in the real world even where their formation is not
illegal.
20. Persuasive Advertisement create an impression on the minds of the consumers
that the advertised product superior to that of the products of the rival firms.
21. Price Discrimination can occur only if it is not possible to transfer any unit of the product
from one market to another market.

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22. Price discrimination is possible due to preference or prejudices of the buyers.
23. Price leadership is an easy method of pricing as it requires a simple casual inquiry as
to the prices of other firms.
24. Price leadership model explains the upward adjustment of prices in Oligopoly
market.
25. Pure monopoly is a single firm, where the cross elasticity of demand between the product
and other industries are zero
26. Pure profit earned by an entrepreneur may also include fortuitous or chance gain.
27. Selling costs affect the position and the shape of the demand curve
28. The Chamberlin solution can be explained both in terms of output adjustment and price
adjustment.
29. The demand curve of a firm is indeterminate under the oligopoly market.
30. The dominant firm is a large firm compare to other firms whose account of market
out share comparatively higher.
31. The first degree involves the maximum people exploitation of each buyer in the
interest of seller’s profit called perfect price discrimination
32. The primary market consists of manufacturers who produces and sells the products to
the wholesalers.
33. The profit maximizing firm in a monopolistic competition reaches equilibrium output
where its Average total cost is equal to price
34. In unregulated markets there are no regulations or condition laid down the government
in such markets.
35. There are three condition by which we can easily know about that firm is earning profit
or loss AC> AR, AC=AR, AC< AR
36. There is no relation between selling costs and the volume of sales secured by a firm.
37. When commodity is bought and sold only in a particular region, which is mainly
influenced by regional condition is called Regional Market.

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 Answer on one or two sentences
1. State the difference between perfect competition and monopolistic market
Basis For Perfect Competition Monopolistic Competition
Comparison
Meaning A market structure, where Monopolistic Competition is a
there are many sellers selling market structure, where there are
similar goods to the buyers, numerous sellers, selling close
is perfect competition. substitute goods to the buyers.
Product Standardized Differentiated
Price Determined by demand and Every firm offer products to
supply forces, for the whole customers at its own price.
industry.
Entry and Exit No barrier Few barriers
Demand Curve Horizontal, perfectly elastic. Downward sloping, relatively
slope elastic.
Relation between AR = MR AR > MR
AR and MR
Situation Unrealistic Realistic

2. What is Barometric leadership?

Barometric price leadership is a price leadership model in which one firm is in a position
to assess and identify the right direction of price movement in the near future. It is not
necessary that this firm is very large in size. Even a small firm can become a barometric
price leader. Such firms have keen eyes and a sharp ability to gauge the correct direction
in which the prices will move in the market. Other players start following this price leader
after they are assured of the skills and correct judgment of the barometric price leader
over a certain period of time.

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 3. What Is Price Leadership?
Price Leadership refers to a situation where the dominant firm sets up the price of goods
or services in the market. It generally happens when the goods are homogeneous, i.e.,
there is no difference in the goods or services provided by different firms. Therefore,
customers don’t have a preference and choose the lowest price. Such a model is usually
seen in the Oligopolistic market, where competition is less.
Price leadership occurs when a leading firm in a given industry is able to exert enough
influence in the sector that it can effectively determine the price of goods or services
for the entire market. This type of firm is sometimes referred to as the price leader
4. What is Cartel?
Cartel is a group of producers of goods or suppliers of services formed through an
agreement amongst themselves, whether or not through a formal agreement in writing,
to regulate the supply of goods or services with the basic intent to control the prices
illegally or to restrict competition in respect of the said goods or services.
A cartel is a situation when two or more firms agree to control the level of supply of
products and services to reduce competition and drive up the market price.
The term ‘cartel’ was used for the agreement in which there existed a common sales
agency which alone undertakes the selling operation of all the firms were party to the
agreement.
5. What is regulated natural monopolist practicing average cost pricing
Makes zero economic profit.
Produces an allocative inefficient level of output.
Produces the largest quantity possible while still enabling the firm to cover its total costs
The government would have to set up an effective machinery that would correctly
measure the average cost of the firm so that price can be appropriately set when the p =
AC
6. What is profit sharing cartel?
Profit Sharing cartel is a group of companies that agree to work together to maximise their
profits by sharing the revenue they generate. In this type of arrangement, each company

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 contributes a portion of its revenue to a central fund, which is distributed among the
members of the cartel based on an agreed decided formula.
The purpose of a profit sharing cartel is to eliminate competition among the members of
the group and to create a shared interest in maximizing their joint profits.
7. Give the definition of Market by Prof. Stonier and prof. Hauge.
Market is an organization whereby buyers and sellers of a good are kept in close touch
with each other. There is no need for a market to be in a single building. The only essential
for a market is that all buyers and sellers should be in constant touch with each other,
either because they are in the same building or because they are able to talk to each by
telephone at a moment’s notice.
8. What is local market?
A local market refers to a physical or virtual marketplace where goods and services are
exchanged within a specific geographic area. This can include farmers' markets, flea
markets, bazaars, and other similar venues.
When the commodity or product or service is bought and sold only in a particular locality,
village or city. It is called as local market which is mainly dependent on local conditions.
9. What is meant by regulated and unregulated market?
When the government lays down certain conditions and regulations for transactions of
certain goods and services, it is known as regulated market. Regulation of markets by
government becomes essential for those goods whose supply or prise can be manipulated
against the interests the consumers.
While goods and services whose transactions are left to the market forces are left to the
market forces are called unregulated market. There are no regulations or condition laid
down the government in such markets.
10. Sate the types of market on the basis of competition.
 Perfect Competition
 Monopoly
 Monopolistic
 Oligopoly
11. State the features of Perfect Competition.
 Large Numbers
 Large number of buyers
 Homogeneous product
 Free entry and free exit

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  Perfect Information about the Prevailing Price
 Absence of Artificial Restriction
 Non-existences of Transportation Costs
 Perfectly mobility of the factor of Production
12. What is Price discrimination?
A seller makes price discrimination between different buyers when it is both possible and
profitable. According to Joan Robinson, “The act of selling the same article, produced
under single control at different prices to different buyers is known as price
discrimination.”
13. State the types of price discrimination.
 Personal
 Age
 Local
 Trade Discrimination
 Trade Discrimination
 International Trade level
 Time discrimination
 Size discrimination
 Quality Variation
14. When Price Discrimination possible?
 The Nature of the Commodity
 Long distances or Tariff Barriers
 Legal Sanction
 Preference or Prejudices of the buyers
 Ignorance and Laziness of buyers
15. State the features of Monopolist Market.
 A large number of firms
 Product differentiation
 Some influence over the price
 Advertisement
 Freedom of entry and exit of firms
16. What is selling cost?
According to Chamberlin, "Selling costs are costs incurred order to alter the
position or shape of the demand curve for a product."

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 Meyers defines selling costs as "the costs necessary to persuade a buyer to buy
one product rather than another or to buy from one seller rather than from
another. "
Boulding, "the process of persuading the buyers to buy more at each price is called
sales promotion, the total expenses involved in sales promotion are called selling
costs."
17. State the Difference between Production Costs and Selling Costs.
Production costs are those costs which are incurred by a firm to produce a given
product. These include cost of raw materials, wages, interest etc; that is to say,
production costs include all those expenses which are incurred in the manufacture of
a product and its transportation to consuming centres. Selling cost on the other
hand, are those costs which are incurred to increase the sale of the product.
18. State the assumptions of The Cournot model
 There are two independent sellers. In other words, interdependence of the
duopolists is is ignored
 They produce and sell a homogeneous product, mineral water.
 The total output must be sold out, being perishable and non-storable.
 The number of buyers is large.
 Each seller knows the market demand curve for the product.
 The cost of production is assumed to be zero.
 Both have identical costs and identical demands.
 Each seller decides about the quantity he wants to produce and sell in each period.
 But each is ignorant about his rival's plan about output.
 At the same time, each seller takes the supply or output of its rival as constant.
 Neither of them fixes the price for its product, but each accepts the market demand
price at which the product can be sold.
 The entry of firms is blocked.
 Each seller aims at obtaining the maximum net revenue or profit.
19. State the features of Oligopoly Market.
 Few Firms (Sellers)
 Interdependence of Firms
 Importance of Advertising and Selling Costs
 Indeterminate Demand Curve
 Presence of Monopoly Element

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  Conflicting Attitudes of the Firms
 Price Rigidity
20. Which are the main methods to determine price under Oligopoly Market?
 Kinked-demand curve model.
 Price-leadership model.
 Collusive oligopoly model.
 Game theory model
21. State the types of Price Leadership.
 Barometric price leadership,
 Dominant firm price leadership,
 Low-cost price leadership.
22. Give the essential condition of price leadership.
 Low Production Cost and Adequate Financial Resources
 Substantial Share of the Market
 Reputation for Sound Pricing Decisions
 Initiative
 Aggressive Pricing Policy
23. What is the nature of the demand curve of a firm under monopoly?
The demand curve or average revenue curve of a firm under monopoly is downward
sloping curve from left to right indicating that the firm can sell additional units only if it
lowers the price.
24. Which factors are affecting to save of Money?
Main factor that affecting to the savings are income, Marginal Propensity to save,
Consumption, Stability of price, government policy etc.
25. How can a monopolist defined?
 A monopolistically competitive firm does not produce at its minimum ATC in the
long-run.
 A monopolistically competitive firm cannot successfully maintain positive economic
profits in the long-run.
 Barriers to entry make it possible for monopolies to earn positive economic profits in
the long-run.

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Unit – 2 & 3 Factor Pricing – Interest Rate Theory – Profit
Theory –Rent - Wage
True and False
37. A lower rate of interest will increase investment, output, employment, income and
savings. True
38. According to Clark, profits arise on account of dynamic changes in the society;
they cannot arise in a static society. True
39. According to Keynes investment depends on the rate of interest and the marginal
efficiency of capital. False
40. According to Keynes the classical theory of interest is indeterminate. True
41. According to the classical theory of interest rate, the supply of funds comes from
Savings, dishoarding and bank credit. False
42. All factors that affect the expected profitability of investment bring changes in the
natural rate of interest. True
43. Capital is demanded by the investors is productive. True
44. Innovation is a distinctive function of an entrepreneur for which he gets profits.
True.
45. Keynes dismisses the modern theory of interest as absolutely wrong and inadequate.
False
46. Keynes theory of interest is also known as Liquidity Trap theory. True
47. Profit is also known as the "surplus" or the "residual income" of industrial sector.
True
48. Profit is not a residual and non-contractual income. False
49. Profit is the "surplus" or the "residual income". True
50. Profit is the difference between the price and the cost of production of the
commodity. True
51. Pure profit earned by an entrepreneur may also include fortuitous or chance gain.
True
52. Surplus in economic term is the difference between the price and the cost of
production of the commodity. True
53. The bank credit is only an important source of the supply of loanable funds. False
54. The businessmen borrow capital are interest elastic and depend most on the
expected rate of profit as compared with the rate of interest. True
55. The classical theory is based on the realistic assumption of full employment.
False

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56. The demand and supply schedules for loanable funds determine the equilibrium
rate of interest. True
57. The demand for investment funds greater than the supply of saving (R2S1 > R2d1)
the rate of interest will rise to R. False
58. The demand for money (L) is not equals the supply of money (M). False
59. The demand for money is a function of the rate of interest to a degree. False
60. The demand schedule for capital or investment curve slopes downward with negative
relation. True
61. The IS-LM theory of interest is based on the realistic assumption of full
employment. False
62. The loanable funds theory is superior because money is an active factor for the
determination of interest rate. True
63. The lonable fund theory has been criticised for combining monetary factors with real
factors. True
64. The speculative demand for money is an increasing function of the rate of interest.
False
65. The speculative motive of demand for money is function of the rate of interest. True
66. The supply curve of capital or the saving curve moves upward to the left. False
67. The supply of capital depends upon savings, rather upon the will to save and the
power to save of the community. True
68. The transactions demand for money depend upon the expectations of the income, of
recipients and businessmen. True
69. There is inverse relation between demand for capital and the rate of interest. True

Fill in blanks
38. A cumulative process is a disequilibrium situation in which net investment is positive
and is constantly increasing from period to period.
39. A lower rate of interest will increase investment, output, employment, income and
savings.
40. A successful innovator earns more than a conventional entrepreneur and the
difference in their earnings is known as innovator's profit.
41. According to the liquidity preference theory the supply of money refers to the total
quantity of money in the country for all purposes at any time.
42. At a higher rate of interest, the demand for capital is low and it is high at a lower rate
of interest.
43. At a higher rate of interest, the demand for capital is low and it is high at a lower rate

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 of interest.
44. At a very low rate if interest, such as 2% the speculative demand for money
becomes perfectly elastic.
45. Business fluctuations are traced to the difference between natural and market rates
of interest.
46. Corporate savings are the undistributed profits of a firm which also depend on
the current rate of interest.
47. Gross Profit = Net profit + Implicit Rent+ Implicit Interest + Implicit Wages
+Depreciation and Insurance charges.
48. Group which means, election of firms which produce closely-related goods that
is goods which are close substitutes to each other and are not identical or
homogeneous products.
49. If the demand for money increases and the liquidity preference carve shifts upward the
supply of money and the rate of interest rises.
50. In a static economy, performance of the entrepreneur does not arise the level of
profit.
51. In the cumulative process of upward or downward change, expansions and
contractions of bank credit play a crucial role.
52. Innovation is a distinctive function of an entrepreneur for which he gets profits.
53. Keynes dismisses the classical theory of interest as absolutely wrong and inadequate.
54. Keynes liquidity preference theory of the interest rate suggests that the interest rate is
determined by the supply and demand for money
55. Net Profit = Gross profit - (Implicit Rent + Implicit Interest + Implicit Wages +
Depreciation and Insurance charges).
56. Rationalisation at the managerial level or changes in industrial organisation creates
larger scope for earning profits.
57. The bank credit is an important source of the supply of loanable funds.
58. The classical theory neglects factors of the supply schedule of capital.
59. The classical theory neglects the effects of investment on the level of income.
60. The classical Theory of interest is also known as the supply and demand theory of
saving.
61. The classical Theory of interest is known as the supply and demand theory of saving.
62. The classical theory remains incomplete when it neglects these factors in the supply
schedule of capital.
63. The demand and supply schedules for lonanable funds determine the
equilibrium rate of interest.

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64. The demand of industrial sector for capital are interest elastic and depend most on
the expected rate of profit as compared with the rate of interest.
65. The demand schedule for capital or investment curve slopes downward from left to
right.
66. The income level and the-interest rate lead to simultaneous equilibrium in the real
(saving-investment) market and the money (demand and supply of money) market.
67. The Investment and Saving curve represents variable flow of the loanable funds
formulation.
68. The IS curve representing flow variable of the loanable funds formulation and the
LM curve representing the stock variables of liquidity preference formulation.
69. The kinked demand curve model was first used by Paul M. Sweezyin 1939.
70. The loanable funds theory is superior because it regards money as an active factor
71. The neo-Keynesian synthesis combines all the four factors saving, liquidity preference,
investment and the quantity of money into a well-integrated theory.
72. The potential of savers who would be induced to save if the rate of interest were
raised.
73. The potential of savers who would be induced to save if the rate of interest were
raised.
74. The precautionary motive relates to the desire to provide for contingencies
requiring sudden expenditures and for unforeseen opportunities of advantageous
purchases.
75. The supply curve of capital or the saving curve moves upward to the right.
76. The supply of capital depends upon savings, rather upon the will to save and the
power to save of the community.
77. The supply of capital is governed by the time preference and the demand for capital by
the expected productivity of capital.
78. The transactions demand for money depend upon the expectations of the income, of
recipients and businessmen.
79. The transactions motive relates to current transactions of personal and business
exchanges.
80. The transactions motive relates with the transactions of personal and business
exchanges.
81. Uncertainty-bearing is one of the main functions of an entrepreneur in the present
capitalist system which leads to profit.
82. When interest rate is lower, the speculative demand for money becomes perfectly
elastic.

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 Answer on one or two sentences
26. Which are four determinants of the rate of interest according to modern theory?
 The investment demand schedule
 The consumption function
 The liquidity preference schedule
 The quantity of money
27. What is the precautionary motive?
The precautionary motive relates to the desire to provide for contingencies requiring
sudden expenditure and for unforeseen opportunities of advantageous purchases.

28. State the limitations of The Classical Theory of Interest.

According to Keynes, income is a variable and not a constant and the equality between
and investment is brought about by changes in income and not by variations in the
rate of interest, Saving-Investment Schedules not Independent, Neglects the
Effects of Investment on Income, Indeterminate Theory, Neglects other Sources of
Savings, Unrealistic Assumption of Full Employment, Neglects Monetary Factors,
Difference over the Definition of Interest
29. Define Interest according to Lonable Fund Theory.
According to Lonable Fund theory, the rate of interest is the price of credit, which is
determined by the demand and supply for loanable funds.
30. State the primary sources of Demand of Money and supply of capital.
The primary sources of Demand of Money are government, businessmen and
consumers who need them for purposes of investment, hoarding and
consumptionsavings, dishoarding and bank credit. While Private, individual and
corporate savings are the main source of saving
31. Why cash balance is not elastic?
Cash balance is not elastic the total cash balances available with the community are
fixed and equal the total supply of money at any time. There are variations in the cash
balances, they are in fact in the velocity of circulation of money rather than in the
amount of cash balances with the community
32. Which are three motives given by Keynes Theory?
 The transaction motive
 The precautionary motive
 The speculative motive
33. Sate the factors that affect the Precautionary motive.
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 The precautionary demand for money depends upon the level of income, and
business activity, opportunities for unexpected profitable deals, availability of
cash, the cost of holding liquid assets in bank reserves, etc.
34. Explain the function on Demand of Money given by Keynes M=M1+M2.
M1 = L1(Y)
M2 = L2(r)
The total liquidity preference function is expressed as M=L (Y,r).
M1 is circulating or active money
M is passive money.
M1 is a function of income and M2 of the rate of interest.
35. Which are the main limitations of Keynesian Theory?
 According to Robertson bonds are not the only alternative source of money
for resources both by the individual and the entrepreneur.
 The Keynesian theory fails into define definite functional relationship
between the quantity of money and the rate of interest.
 The rate of interest is the return for saving without liquidity
 Keynes's analysis is that he ignores the influence of real factors in determining the
interest rate.
36. What is difference among Profit and other factor’s income?
 The income of other factors of production, namely rent, wages and
interest is always positive and profit may be zero or negative.
 The incomes of the factors of production like rent, wages and interest
are contractual factors incomes, that these are predetermined to the
contract between the owners of these income and entrepreneur while
profit is non-contractual income because profit is uncertain and unstable.
 Profit fluctuates more than the incomes of other factors of production
rent, wages and interest do change with the change in the level of
economic activity, but the changes are not as wide as in the case of profit.
37. Can profits arise in a static economy? Why?
According to Clark, profits do not arise in a static economy the reason is that in such
economy, there is no change in the demand and supply conditions, the consumers’
behaviour and the producers’ technology remain unchanged in such an economy. The
price paid to the factors on the basis of their marginal productivity tends to be equal to
the average cost, and surplus being zero, no profit accrue to the entrepreneur.
38. How to profits arise in a dynamic economy?

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 According to Prof. Clark because of dynamic changes taking place in the economy there
is a divergence between price and cost and this gives rise profits positive or negative. For
example, either or account of increase in population or increase in the consumers’ income
or the changes in their tasks and preferences, an entrepreneur who has the ability to adjust
his output is sure to earn profit.
39. What is innovation?
According to Schumpeter, “Any new measure or policy adopted by an entrepreneur
to reduce his cost of production or to increase the demand for his product is
innovation."
40. What is difference between invention and innovations?
An invention means the discovery of a new process or a technique, while innovation
means practical applications or its use on commercial scale for mass production. The
innovators are not a scientist who invents new processes but he is the man who successfully
applies them in production process.
41. What are insurable risks?
These risks are foreseeable and can be covered by insurance. for example, risk of fire,
flood, theft, robbery, accident, sinking of the ship. etc. The entrepreneur makes a
suitable provision for such risks by taking insurance policy and paying a fixed
premium on it. Insurable risks, therefore, do not create any uncertainty and as such
they do not give rise to profits.
42. What si non-Insurable Risks?
These are risks which cannot be insured against; these are unpredictable and no
insurance company will ever agree to bear them. These risks have to be borne by
the entrepreneur himself. It is these non-insurable risks which create uncertainties
and that gives rise to profits.
43. Which five changes occur in a dynamic society?
 Changes in the size of the population.
 Changes in human wants - resulting from changes in tastes, preferences,
fashions and income of the people.
 Changes in the supply of capital
 Changes in the technique of production.
 Changes in the form of industrial and business organisation.
44. Give the list of non-insurable risk given by Prof. Knight.
According to Knight, uncertainties or non-insurable risks may be of the following
types

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  Demand Risk
 Competitive Risks
 Technological Risks
 Business Cycle Risks
 Risk of Government Policy
45. What are Exogenous Changes?
The changes which take place due to factors external to the firm or even to the
industry and are beyond its control. These changes generally affect all the firms in
the industry and in some cases all the industries in the economy and thereby
influence the rate and quantum of profit. Exogenous changes which affect profits
are economic, technological, demographic, social and political.
46. How many types of innovations define by Prof. Schumpeter?
There are five types of innovators in the economy.
 Introduction of a new product.
 Adoption of new technique of production.
 Opening of a new market.
 Conquest of the new source of supply of raw-materials or semi-manufactured
goods.
 New and better methods of industrial and business organisation.
47. What is profit maximization output
A profit-maximizing output for a single-price monopoly is determined by the intersection
of the Marginal cost curves and the profit-maximizing price is found on the marginal
revenue; demand curve
48. Define barometric price leadership
In barometric price leadership, all firms agree to follow the price changes made
by a firm which is supposed to have a good knowledge of the market conditions and
thus can forecast future happenings in the market better than others. In price
leadership an experienced firm which possesses an ability to accurately predict demand
conditions and knowledge of market supply, takes leadership in fixing the price.
49. Define rent by modern economics
In modern economists use the word “rent” as an economic surplus or transfer earning
of a factor of production in excess of the minimum amount necessary to keep it in its
present use.
50. Write the assumption of Clark’s marginal productivity of distribution.

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  Perfect competition exists both in product market and in input market. As a result,
price of the product and price of the input are given.
 Every unit of input is homogeneous and easily substitutable.
 Inputs are perfectly mobile.
 There exists full employment of resources.
 Employer can measure the marginal product of an input in advance.
 Law of variable proportions operates.
 Firm hires input with the objective of profit maximization.

51. Write the assumption of the Marginal Productivity theory of distribution?

 It assumes that all units of a factor are homogeneous and substituted for each
other.
 There is perfect mobility of factors as between different places and
employments.
 There is perfect competition in the factor market.
 There is perfect competition in product market.
 There is full employment of factors and resources.
 The various units of the different factors are divisible.
 One factor is variable and other factors are constant.
 Techniques of production are given and constant.
 The entrepreneurs are motivated by profit maximization.
 The theory is applicable in the long-run.
 It is based on the Law of Variable Proportions.
52. What is mean of the three motives of liquidity preference?
According the liquidity preference theory of interest rate, transactions plus
precautionary motive are income elastic and the speculative motive is interest elastic
53. What is LM schedule?
The liquidity preference and money stock schedule is schedule showing the relation
between income and inter; (given the L function and the supply of M) when the desired
cash equals the actual cash.
54. State the difference between perfect competition and monopolistic market
 Demand curve of perfect competition is parallel to X axis that perfect elastic,
while in monopolistic market demand curve is relatively elastic or inelastic.
 Perfect competition has a large number of small firms while monopolistic
competition does not.
 In perfect competitive market firm is price taker while in monopolistic price
maker.

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  In perfect competition, firms produce homogeneous product, while in
monopolistic competition, firms produce slightly different goods.
 In perfect competition advertisement cost is not included in total production cost,
while in monopolistic market selling cost or advertisement cost is important factor
55. Sate the types of market on the basis of competition.
56. State the features of Perfect Competition.
57. What is Price discrimination?
58. State the types of price discrimination.
59. When Price Discrimination possible?
60. In which market price discrimination is profitable and when?
61. State the features of Monopolist Market.
62. What is selling cost?
63. State the Difference between Production Costs and Selling Costs.
64. State the assumptions of The Cournot model
65. State the features of Oligopoly Market.
66. Which are the main methods to determine price under Oligopoly Market?
67. What is Price Leadership?
68. State the types of Price Leadership.
69. Give the essential condition of price leadership.
70. What is Cartel?
71. What is the nature of the demand curve of a firm under monopoly?
72. Which factors are affecting the saving?
73. State the limitations of The Classical Theory of Interest.
74. Define Interest according to Lonable Fund Theory.
75. State the primary sources of Demand of Money and supply of capital.
76. Why cash balance is not elastic?
77. Which are three motives given by Keynes Theory?
78. Sate the factors that affect the Precautionary motive.
79. Which are the main limitations of Keynesian Theory?
80. What is difference between Profit and other factor’s income?
81. Can profits arise in a static economy? Why?
82. How to profits arise in a dynamic economy?
83. What is innovation?
84. What is difference between invention and innovations?
85. What are insurable and non-insurable risks?

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86. Which five changes occur in a dynamic society?
87. What are Exogenous Changes?
88. How many types of innovations define by Prof. Schumpeter?
89. Give the list of non-insurable risk given by Prof. Knight.
90. Why is the demand curve of a firm parallel to x axisin perfect competition?
91. What are the main characteristics of monopoly market?
92. What is difference between money wage and real wage?
93. Clarify the meaning of accounting profit and economic profit?
94. Explain the concept of price leadership?
95. What is meant by equilibrium of a firm?
96. Is price discrimination possible under perfect competition? Why?
97. Give the reasons of wage differentiation in same occupation.
98. State the relationship between rent and quasi-rent.
99. What is meant by Quasi rent?
100. What are the main limitations of the Marginal Productivity theory?

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