103 Economic Analysis for Business Decisions mcq bhati

Managerial Economics: Concept of Economy, Economics, Microeconomics, Macroeconomics. Nature and
Scope of Managerial Economics, Managerial Economics and decision-making. Concept of Firm, Market, Objectives of
Firm: Profit Maximization Model, Economist Theory of the Firm, Cyert and March’s Behavior Theory, Marris’ Growth
Maximisation Model, Baumol’s Static and Dynamic Models, Williamson’s Managerial Discretionary Theory. (6+1)
2. Utility & Demand Analysis: Utility – Meaning, Utility analysis, Measurement of utility, Law of diminishing
marginal utility, Indifference curve, Consumer’s equilibrium - Budget line and Consumer surplus. Demand - Concept of
Demand, Types of Demand, Determinants of Demand, Law of Demand, Elasticity of Demand, Exceptions to Law of
Demand. Uses of the concept of elasticity. Forecasting: Introduction, Meaning and Forecasting, Level of Demand
Forecasting, Criteria for Good Demand Forecasting, Methods of Demand Forecasting, Survey Methods, Statistical
Methods, Qualitative Methods, Demand Forecasting for a New Products. (Demand Forecasting methods - Conceptual
treatment only numericals not expected) (8+1)
3. Supply & Market Equilibrium: Introduction, Meaning of Supply and Law of Supply, Exceptions to the Law of
Supply, Changes or Shifts in Supply. Elasticity of supply, Factors Determining Elasticity of Supply, Practical Importance,
Market Equilibrium and Changes in Market Equilibrium. Production Analysis: Introduction, Meaning of Production and
Production Function, Cost of Production. Cost Analysis: Private costs and Social Costs, Accounting Costs and Economic
costs, Short run and Long Run costs, Economies of scale, Cost-Output Relationship - Cost Function, Cost-Output
Relationships in the Short Run, and Cost-Output Relationships in the Long Run. (8+1)
4. Revenue Analysis and Pricing Policies: Introduction, Revenue: Meaning and Types, Relationship between
Revenues and Price Elasticity of Demand

1. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 1


MCQ
In
103 – Economic Analysis for
Business Decisions

CHAPTER-WISE


For
MASTER OF BUSINESS ADMINISTRATION
(FIRST YEAR-Semester-I)



Compiled by: Dr. Bhati Rakesh

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PRACTICE PAPER : 1

1. When is a good or service scarce?
a. it is rare and hard to come by.
b. there is not enough of it available for
everybody who wants it for free.
c. there is plenty available for everyone who
wants it.
d. there is a shortage.
Answer:B
2. Human wants and desires are
a. eventually satisfied in any society
b. constant from one time period to the next
c. virtually unlimited
d. limited and scarce
Answer: C
3. Scarcity is an economic problem
a. only in capitalist economies.
b. only in command economies.
c. only in poor countries.
d. in every country and in every household.
Answer: D
4. Economic analysis would be unnecessary if
there were no
a. taxes
b. government
c. scarcity
d. money
Answer: C
5. Because resources are scarce,
a. opportunity costs are zero
b. people must make choices among
alternatives
c. all human wants and desires can be
satisfied
d. resource prices are flexible
Answer: B
6. Economics deals with the problems caused
by
a. scarce resources and unlimited wants.
b. scarce resources and limited wants.
c. abundant resources and unlimited wants.
d. abundant resources and limited wants.
Answer: A
7. Resources are divided into the following
broad categories:
a. men, money, and machines.
b. saving, spending, investment, and capital.
c. human, technological, and government.
d. land, labor, capital, and entrepreneurial
ability.
Answer: D
8. In economics, “land” refers
a. only to plots of ground on the surface of
the earth.
b. to the specific area of the earth in a
country or region.
c. to rural regions as distinguished from urban
areas.
d. to any and all natural resources.
Answer: D
9. Physical and mental human effort is defined
in economics as
a. labor
b. manpower
c. productivity
d. performance
Answer: A
10. Labor is ultimately derived from
a. capital
b. technology
c. natural resources
d. time
Answer: D
11. In economics, “capital” refers to
a. money.
b. stocks, bonds, and other financial assets.
c. the seat of government.
d. machines, buildings, and tools.
Answer:D
12. Which of the following is not an example
of “capital”?
a.the copy machine which duplicated this
exam
b. an economics professor’s knowledge of
economics
c. the building in which this class is located
d. the amount of tuition which you paid for
this class
Answer: D
13. An entrepreneur is
a. an intermediary between buyers and sellers
in the marketplace.
b. the organizer who seeks profitable
opportunities and is willing to accept risks.
UNIT– 1
UNIT -I Managerial Economics: Concept of Economy, Economics, Microeconomics,
Macroeconomics. Nature and Scope of Managerial Economics, Managerial Economics and
decision-making. Concept of Firm, Market, Objectives of Firm: Profit Maximization Model,
Economist Theory of the Firm, Cyert and March’s Behavior Theory, Marris’ Growth Maximisation
Model, Baumol’s Static and Dynamic Models, Williamson’s Managerial Discretionary Theory.

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c. a business organization involved in using
inputs to produce output.
d. the administrator who runs an enterprise
without accepting any risk of financial loss.
Answer: B
14. Managerial and organizational skills are
categorized as
a. physical capital
b. technological ability
c. entrepreneurial ability
d. human labor
Answer: C
15. Payment for the use of natural resources in
a production process is called
a. rent.
b. wages.
c. interest.
d. profit.
Answer: A
16. Payment for the use of financial capital in
a production process is called
a. rent.
b. wages.
c. interest.
d. profit.
Answer: C
17. In a production process, profit is the
payment received by the
a. capital.
b. labor
c. technology.
d. entrepreneur.
Answer: D
18. Profit is also known as
a. rent
b. mark-up
c. the monetary aggregate
d. the residual claimed by the entrepreneur
Answer: D

19. Unlike a service, a good
a. is desirable
b. uses resources to satisfy wants
c. is physical and tangible
d. is abundant and free
Answer: C
20. Goods and services which are considered
free
a. are the most important topics for economic
analysis
b. are produced at no cost to society or the
the individual
c. usually involve some real opportunity cost
d. are undesirable
Answer: C
21. Households
a. own and sell resources
b. play a very minor role in the economy
c. produce goods and services
d. none of the above
Answer:A
22. Goods and services are exchanged in
a. product markets.
b. resource markets.
c. inventory markets.
d. classified markets.
Answer: A
23.The labor market is an example of a
a. government market.
b. classified market.
c. communication market.
d. resource market.
Answer: D
24. The economic behavior of individual
decision makers and the determination of
price and output in specific markets are both
studies in
a. microeconomics.
b. macroeconomics.
c. positive economics.
d. normative economics.
Answer: A
25. In macroeconomics, we analyze the
a. all of the following.
b. overall performance of the economy as a
whole.
c. arrangements through which specific
products are exchanged.
d. influences on the decision making of
particular households.
Answer: B
26. The assumption of rational self-interest
means that economic decision makers
a. have no concern for the welfare of others.
b. consider the welfare of others to be more
important than their own happiness.
c. know with certainty which choice will have
the best result.
d. make reasonable decisions based on their
expectations of results.
Answer: D
27. In economics, the term “marginal” refers
to
a. a change in an economic variable.
b. a low quality product or resource.
c. an unimportant and irrelevant economic
variable.
d. all-or-nothing economic decisions.
Answer: A

28.Rational economic decision makers will
make a change only if
a. the change is free of risk
b. there are no costs involved

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c. their expectations are correct
d. expected marginal benefit exceeds
expected marginal cost
Answer: D
29.When economic choice involves
adjustment to the existing situation, marginal
analysis
a. has no practical applications or real-world
uses.
b. eliminates incorrect decisions and bad
choices.
c. means comparing the additional costs and
additional benefits of an activity before
deciding.
Answer: C
30. Economic information
a. is scarce and costly to acquire
b. is available for free to any decision maker
c. is not required for rational decision making
d. must be complete before any decision is
made
Answer: A
31. An economic model is useful only if it
a. includes every detail of reality
b. makes no unproven assumptions
c. is mathematical, and is expressed in
equations
d. makes accurate predictions
Answer:D

32. The scientific method is useful
a. only in fields of science such as chemistry
and physics
b. for testing the validity of theoretical
predictions
c. for testing the validity of a model’s
assumptions
d. when no economic variables can be
assumed to be constant

Answer: B
33. The “ceteris paribus” assumption means
a. “after all other changes have been taken
into consideration”.
b. “all economic decision makers behave
according to rational self-interest”.
c. “marginal benefit equals marginal cost”
d. “holding all other variables constant”.
Answer: D
34.A hypothesis is
a. an assumption about behavior
b. useful only if the assumptions are realistic
c. useful in microeconomics, but not in
macroeconomics
d. a prediction of what will occur, given
certain assumptions
Answer: D

35. A model which sometimes makes
incorrect predictions will be used by
economic decision makers
a. under no circumstances
b. only if its assumptions are detailed and
realistic
c. if it is mathematical and computerized
d. until a better model is developed
Answer: D
36. Economic theory is designed to
a. express normative values
b. invent an imaginative and interesting story
c. predict the behavior of a specific
economic decision maker after an economic
change
d. predict the average behavior of a group of
similar economic decision makers after an
economic change
Answer:D
37.The difference between positive economic
statements and normative economic
statements is that
a. positive statements are based on opinion
and normative statements are based on fact.
b. positive statements are true and normative
statements are often false.
c. positive statements are based on fact and
normative statements are based on opinion.

Answer: C
38. If one were to commit the association-is-
causation fallacy, one would conclude that
a. an event which follows another event was
caused by the first event.
b. an event which follows another event was
not necessarily caused by the first event.
c. the simplest model is the best predictor.
d. what is true for the individual is also true for
the group.
Answer: A

39. Economics is the study of how:
A) Best to use society's scarce
resources.
B) Society spends the income of
individuals.
C) Society purchases resources,
given its macroeconomic goals.
D) Individual market participants
decide what to produce given fixed resource
constraints.
Answer: A
40. Economics can be defined as the study of:
A) For whom resources are
allocated to increase efficiency.

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B) How society spends the income
of individuals.
C) How scarce resources are
allocated to fulfill society's goals.
D) What scarce resources are used
to produce goods and services.
Answer: C
41. The fundamental problem of economics is:
A) The law of increasing
opportunity costs.
B) The scarcity of resources relative
to human wants.
C) How to get government to
operate efficiently.
D) How to create employment for
everyone.
Answer: C
42. Given that resources are scarce:
A) A "free lunch" is possible but only
for a limited number of people.
B) Opportunity costs are
experienced whenever choices are made.
C) Poor countries must make
choices but rich countries with abundant
resources do not have to make choices.
D) Some choices involve
opportunity costs while other choices do not.
Answer: B
43. A consequence of the economic problem
of scarcity is that:
A) Choices have to be made
about how resources are used.
B) There is never too much of any
good or service produced.
C) The production of goods and
services must be controlled by the
government.
Answer:A
44. Which of the following is a scarce
resource?
A) Paper used to produce textbooks.
B) Clean water.
C) Wheat given to Russia to alleviate hunger.
D) All of the above.
Answer: D

45. Factors of production are:
A) Scarce in every society.
B) Scarce only in United States.
C) Scarce only in the poorest
countries of the world.
D) Unlimited in quantity.
Answer: A
46. Which of the following is an economic
resource?
A) A worker used to build a new
highway.
B) An office building used by an
insurance company.
C) A vacant piece of land in New
York City.
D) All of the above are economic
resources.

Answer: D

47. Which of the following is the best example
of land?
A) The gasoline refined from crude
oil.
B) A factory which produces new
goods and services.
C) The river water used to float a
riverboat casino.
D) All of the above
Answer: C

48 Capital, as economists use the term, refers
to:
A) The money needed to start a
new business.
B) The costs of operating a
business.
C) Shares of stock issued by
businesses.
D) Final goods that are used to
produce other goods and services.
Answer: D

49 The role of the entrepreneur in an
economy is to:
A) Bring the factors of production
together and assume the risk of production.
B) Work with government planners
to determine what goods are produced.
C) Arrange bank financing for the
owners of new businesses.
D) Ensure full employment of labor.
Answer: A


50 Opportunity cost is:
A) Only measured in dollars and
cents.
B) The dollar cost to society of
producing the goods.
C) The difficulty associated with
using one good in place of another.
D) The alternative that must be
given up in order to get something else.
Answer:D

PRACTICE PAPER : 2

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1. Economics is the study of how:
A) Best to use society's scarce
resources.
B) Society spends the income of
individuals.
C) Society purchases resources, given
its macroeconomic goals.
D) Individual market participants
decide what to produce given fixed
resource constraints.

Answer: A
2. Economics can be defined as the
study of:
A) For whom resources are allocated
to increase efficiency.
B) How society spends the income of
individuals.
C) How scarce resources are allocated
to fulfill society's goals.
D) What scarce resources are used to
produce goods and services.

Answer: C

3. The fundamental problem of
economics is:
A) The law of increasing opportunity
costs.
B) The scarcity of resources relative to
human wants.
C) How to get government to operate
efficiently.
D) How to create employment for
everyone.

Answer: B

4. In economics, what does scarcity
mean?
A) That a shortage of a particular
good will cause the price to fall.
B) That a production-possibilities curve
cannot accurately represent the
tradeoff between two goods.
C) That society's desires exceed the
want-satisfying capability of the
resources available to satisfy those
desires.
D) That the market mechanism has
failed.

Answer: C

5. Given that resources are scarce:
A) A "free lunch" is possible but only for
a limited number of people.
B) Opportunity costs are experienced
whenever choices are made.
C) Poor countries must make choices
but rich countries with abundant
resources do not have to make
choices.
D) Some choices involve opportunity
costs while other choices do not.

Answer: B

6. Which of the following is the best
description of the origin of the
economic problem of scarcity?
A) Humans have limited wants for
goods and services and resources
are also limited.
B) Humans have limited wants for
goods and services and resources
are unlimited.
C) Humans have unlimited wants for
goods and services but resources
are limited.
D) Humans have unlimited wants for
goods and services and resources
are also unlimited.

Answer: C


7. A consequence of the economic
problem of scarcity is that:
A) Choices have to be made about
how resources are used.
B) There is never too much of any
good or service produced.
C) The production of goods and
services must be controlled by the
government.
D) The production-possibilities curve is
bowed outward.

Answer: A

8. Which of the following is a scarce
resource?
A) Paper used to produce textbooks.
C) Clean water.
B) Wheat given to Russia to alleviate
hunger.
D) All of the above.

Answer: D

9. Which of the following is a scarce
resource?
A) Land. B) Labor. C)

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Entrepreneurship. D) All of the
above.
Answer: D

10. Factors of production are:
A) Scarce in every society.
B) Scarce only in United States.
C) Scarce only in the poorest countries
of the world.
D) Unlimited in quantity.
Answer: A

11. Which of the following is not a factor of
production?
A) A teacher. C) The $100,000 used to start a new business.
B) A ballpoint pen. D) Ten acres of forest.

Answer: C

12. Which of the following is an economic
resource?
A) A worker used to build a new
highway.
B) An office building used by an
insurance company.
C) A vacant piece of land in New York
City.
D) All of the above are economic
resources.
Answer: D

13. With respect to factors of production,
which of the following statements is not
true?
A) Factors of production are also
known as resources.
B) In order to produce anything, it is
necessary to have factors of
production.
C) Factors of production include land,
labor, capital, and
entrepreneurship.
D) Only those resources that are
privately owned are counted as
factors of production.

Answer: D

14. Which of the following is the best
example of land?
A) The gasoline refined from crude oil.
B) A factory which produces new
goods and services.
C) The river water used to float a
riverboat casino.
D) A shovel.
Answer: C

15. Capital, as economists use the term,
refers to:
A) The money needed to start a new
business.
B) The costs of operating a business.
C) Shares of stock issued by businesses.
D) Final goods that are used to
produce other goods and services.

Answer: D
16. Which of the following is the best
example of capital and no other factor
of production?
A) Clean air.
B) Money in a savings account.
C) Equipment that will be used to
produce goods.
D) The property on which a landfill has
been established.

Answer: C

17. Which of the following performs the role
of both capital and land?
A) A manufacturing plant and the
property on which it is located.
B) The equipment used to produce
goods.
C) A mine that has been vacated
because it is no longer profitable.
D) All of the above.

Answer: A

18. An entrepreneur is:
A) An innovator.
B) Someone who brings resources
together and produces a product.
C) A risk taker.
D) All of the above.

Answer: D

19. The role of the entrepreneur in an
economy is to:
A) Bring the factors of production
together and assume the risk of
production.
B) Work with government planners to
determine what goods are
produced.
C) Arrange bank financing for the
owners of new businesses.
D) Ensure full employment of labor.

Answer: A

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20. Opportunity cost is:
A) Only measured in dollars and cents.
B) The dollar cost to society of
producing the goods.
C) The difficulty associated with using
one good in place of another.
D) The alternative that must be given
up in order to get something else.

Answer: D

21. Opportunity cost may be defined as
the:
A) Goods or services that are forgone
in order to obtain something else.
B) Dollar prices paid for final goods
and services.
C) Dollar cost of producing a particular
product.
D) Difference between wholesale and
retail prices.

Answer: A

22. The opportunity cost of studying for an
economics test is:
A) Negative, since it may improve your
grade.
B) Zero, because you knew when you
registered for the class that studying
would be required.
C) The money you spent on tuition for
the class.
D) The best alternative use of your
time.

Answer: D

23. The concept of opportunity cost would
become irrelevant if:
A) The market mechanism functioned
to allocate resources fairly.
B) The government allocated
resources.
C) The production-possibilities curve
bowed outward.
D) Resources were no longer scarce.

Answer: D
24. A production-possibilities curve
indicates the:
A) Combinations of goods and
services an economy is actually
producing.
B) Maximum combinations of goods
and services an economy can
produce given its available
resources and technology.
C) Maximum combinations of goods
and services an economy can
produce given unlimited resources.
D) Average combinations of goods
and services an economy can
produce given its available
resources and technology.

Answer: B

25. Which of the following is an assumption
under which the production-possibilities
curve is drawn?
A) There is significant unemployment.
C) The price level is changing.
B) The supply of factors of production
is fixed.
D) Technology is changing.

Answer: B

26. A point on a nation's production-
possibilities curve represents:
A) An undesirable combination of
goods and services.
B) Combinations of production that
are unattainable, given current
technology and resources.
C) Levels of production that will cause
both unemployment and inflation.
D) The full employment of resources to
achieve a particular combination of
goods and services.

Answer: D


27. Which of the following correctly
characterizes the shape of a
production-possibilities curve?
A) A straight line indicating the law of
increasing opportunity costs applies.
B) A straight line when there are
constant opportunity costs.
C) A line that curves outward when
resources are perfectly adaptable
in the production of different goods.
D) A line that curves inward when
resources are perfectly adaptable
in the production of different goods.

Answer: B

28. If an economy is producing on its
production-possibilities curve, then

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producing:
A) More of one good implies
producing more of another good.
B) Less of one good implies producing
less of another good.
C) More of one good implies
producing less of another good.
D) More of one good implies shifting
the curve toward the origin.

Answer: C


29. The production-possibilities curve
illustrates:
A) The limitations that exist because of
scarce resources.
B) That there is no limit to what an
economy can produce.
C) That there is no limit to the level of
output.
D) The existence of unlimited wants
and resources.

Answer: A

30. The production-possibilities curve
illustrates that:
A) Society can always produce more
of all goods simultaneously.
B) Constant opportunity costs always
exist.
C) There are no opportunity costs in a
wealthy economy.
D) If society is efficient, it can produce
more of one good only if it reduces
output of another good.

Answer: D

31. According to the law of increasing
opportunity costs:
A) The more one is willing to pay for
resources, the larger will be the
possible level of production.
B) Increasing the production of a
particular good will cause the price
of the good to rise.
C) In order to produce additional units
of a particular good, it is necessary
for society to sacrifice increasingly
larger amounts of alternative goods.
D) Only by keeping production
constant can rising prices be
avoided.

Answer: C

32. The law of increasing opportunity costs
explains:
A) How everything becomes more
expensive as the economy grows.
B) The shape of the production-
possibilities curve.
C) Inflation.
D) All of the above.

Answer: B

33. According to the law of increasing
opportunity costs:
A) Greater production leads to greater
inefficiency.
B) Greater production means factor
prices rise.
C) Greater production of one good
requires increasingly larger sacrifices
of other goods.
D) Higher opportunity costs induce
higher output per unit of input.

Answer: C

34. If an economy experiences increasing
opportunity costs with respect to two
goods, then the production-possibilities
curve between the two goods will be:
A) Bowed outward.
C) A straight, downward-sloping line.
B) Bowed inward.
D) All of the above are possible.

Answer: A

35. The production-possibilities curve bows
outward because:
A) Resources are used inefficiently as
more of a good is produced.
B) In order to get more of a particular
good, increasing quantities of other
goods must be given up.
C) Resources move easily from the
production of one good to the
production of another.
D) Resources are scarce and choices
must be made.

Answer: B
36. Efficiency can be defined as the:
A) Maximum resources used in
producing a given output level.
B) Maximum output of a good
produced from the available
resources.

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C) Minimum output of a good
produced from the available
resources.
D) Maximum output of a good
produced if all resources are
devoted to its production.
Answer: B

37. When an economy is producing
efficiently it is:
A) Producing a combination of goods
and services beyond the
production-possibilities curve.
B) Getting the most goods and
services from the available
resources.
C) Experiencing decreasing
opportunity costs.
D) All of the above.

Answer: B

38. Which of the following is true when an
economy is producing efficiently?
A) The economy is producing on the
production-possibilities curve.
B) Goods and services are being
produced using the fewest
resources.
C) The economy is getting the most
goods and services from t he
available resources.
D) All of the above.

Answer: D

39. Long-run economic growth would best
be represented by a:
A) Shift outward of the production-
possibilities curve.
B) Shift inward of the production -
possibilities curve.
C) Movement fr om inside the
production-possibilities curve to a
point on the production-possibilities
curve.
D) Movement from the production -
possibilities curve to a point inside
the production-possibilities curve.

Answer: A
40 Which of the following is not a basic
decision that all nations must confront?
A) Should we have economic growth?
B) How should we produce goods and
services?
C) For whom should goods and
services be produced?
D) What goods and services should we
produce?

Answer: A

41. In a market economy, the question of
WHAT to produce is answered by:
A) Direct negotiations between
consumers and producers.
B) Producer profits and sales.
C) Government directives.
D) A democratic vote of all producers.

Answer: B

42. In a market economy, the question of
HOW to produce is determined by:
A) Government planners.
B) The production possibilities curve.
C) The least-cost method of
production.
D) The method of production which
uses the least amount of labor.

Answer: C

43. In a market economy, the people who
receive the goods and services that
are produced are those who:
A) Need the goods and services the
most.
C) Have the most political power.
B) Want the goods and services the
most.
D) Are willing to pay the highest price.

Answer: D

44. The market mechanism may best be
defined as:
A) Price regulation by government.
B) The use of market signals and
government directives to select
economic outcomes.
C) The process by which the
production-possibilities curve shifts
inward.
D) The use of market prices and sales
to signal desired output.

Answer: D

45. The market mechanism:
A) Allows buyers to communicate with
producers indirectly.
B) Is directed by the government in

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order to promote efficiency.
C) Results in the misallocation of
resources because producers seek
to maximize profits.
D) Allocates goods in an equitable
manner.
Answer: A
46. The market mechanism:
A) Is not a very efficient means of
communicating consumer demand
to the producers of goods and
services.
B) Works through central planning by
government.
C) Eliminates market failures created
by government.
D) Works because prices serve as a
means of communication between
consumers and producers.

Answer: D
47. The invisible hand refers to:
A) Intervention in the economy by the
government bureaucrats we do not
see and over whom we have no
control.
B) Undiscovered natural resources.
C) The allocation of resources by
market forces.
D) The person who has the
responsibility to coordinate all the
markets in a market economy.
Answer: C

48. The doctrine of laissez faire is based on
the belief that:
A) Markets are likely to do a better job
of allocating resources than
government directives.
B) Government directives are likely to
do a better job of allocating
resources than markets.
C) Government failure does not exist.
D) Markets result in an unfair
distribution of income.

Answer: A

49. Which of the following would advocate
a laissez faire economic policy?
A) Karl Marx. B) Adam Smith. C)
John Maynard Keynes. D)
President Franklin Roosevelt.

Answer: B

50. Karl Marx wrote:
A) The Wealth of Nations, which
provided the rationale for centrally-
planned economies.
B) The Wealth of Nations, which
described the virtues of market-
based economies.
C) Das Kapital, which provided the
rationale for centrally-planned
economies.
D) Das Kapital, which described the
virtues of market-based economies.

Answer: C


PRACTICE PAPER : 3


1. The curve showing the possibilities of
production of desired good is known as:
(A) Indifference curve
(B) Production possibility curve
(C) Revealed preference curve
(D) None of these

Answer: B
2. Which one of the following definition of
Economics is associated with the name of
Lionel Robbins?
(A) Welfare definition
(B) Scarcity definition
(C) Growth definition
(D) Wealth definition
Answer:B
3. A hypothesis is tested by:
(A) The realism of its assumptions
(B) The lack of realism of its assumptions
(C) Its ability to predict accurately an
outcome that follows logically from the
assumptions
(D) None of these
Answer: C
4. In a free enterprise economy, the problems
of what, how and for whom to produce are
solved by :
(A) A Planning Committee
(B) The Price mechanism
(C) The Planning Commission
(D) None of these.
Answer: B
5. Who considered Political Economy as “an
enquiry into the nature and causes of the
wealth of nations”?
(A) Adam Smith (B) J.B.Say
(C) Marshall (D) Keynes
Answer: A

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6. Which of the following definitions of
Economics include the economic concept of
‘scales of Preferences’?
(A) Wealth definition
(B) Welfare definition
(C) Scarcity definition
(D) Growth definition
Answer: C
7. Which of the following embodies a more
widely accepted definition of economics?
(A) Science of material welfare
(B) Science of wealth
(C) A study of mankind in the ordinary
business of life
(D) Science of making choice.
Answer: D
8. The fundamental problem faced by an
economy is one of :
(A) Exchange
(B) Decision making by the government
(C) Economic welfare
(D) Scarcity of resources and multiplicity of
wants.
Answer: D
9. Production possibilities curve does not show:
(A) What to produce
(B) How to produce
(C) For whom to produce
(D) Productive potential under conditions of
underemployment
Answer: D

10. State whether Economics is :
(A) A positive science only
(B) Neither a positive science
(C) A science but not art
(D) A science or an art depending on who
uses Economics and for what purpose.
Answer:D
11. Who of the following emphasized the
normative aspect of Economics as a science?
(A) The English classical school
(B) Lionel Robbins
(C) The German historical school
(D) None of these.
Answer: C
12. Of the following economists who is
considered as master of partial analysis?
(A) Alfred Marshall (B) A.C.Pigou
(C) J.M.Keynes (D) J.S.Mill.
Answer: A
13. Find out the correct statement:
(A) Deductive method descends from general
to the particular
(B) Inductive method descends from general
to the particular
(B) The classical economists stood for
inductive method
(D) Deductive method depends on
experimentation.
Answer: A
14. Which of the following statements has
been drawn by inductive method?
(A) A consumer will buy from the cheapest
market
(B) All businessmen wish to buy at low price
and sell at high price
(C) A private firm will try to maximize its profits
(D) The larger the stock of money with a
person, the lower is the utility that he
derives from it.
Answer: B
15. What is true for deductive method?
(A) Abstract
(B) Realistic
(C) Economic conditions assumed to be
changing
(D) Supported by historical school.
Answer: A
16. What is true for inductive method?
(A) Hypothetical (B) Empirical
(C) Ignores experimentation (D) Static
Answer: B
17. Find out the correct statement:
(A) Prediction of economic models cannot be
refuted by empirical evidence
(B) Models transform verbal expressions in to
more scientific expressions
(C) Models make no assumptions
(D) Economic models are comprehensive and
not partial
Answer: B
18. Micro economic theory studies how a free
enterprise economy determines:
(A) The Price of goods (B) The price of services
(C) The price of resources (D) All of these.
Answer: A
19. Which aspect of taxation involves
normative economics?
(A) The incidence of the tax
(B) The fairness of the tax
(C) The effect of the tax on incentives to work
(D) All of the above
Answer: B
20. Microeconomics deals primarily with:
(A) Comparative statics, general equilibrium
and positive economics
(B) Comparative statics, partial equilibrium
and normative economics
(C) Dynamics, partial equilibrium and positive
economics
(D) Comparative statics, partial equilibrium
and positive economics.

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Answer: D
21. Which of the following is incorrect?
(A) Microeconomics is concerned primarily
with the problem of what , how and for whom
to produce
(B) Microeconomics is concerned primarily
with the economic behavior of individual
decision making units when at equilibrium
(C) Microeconomics is concerned primarily
with the time path and processes by which
one equilibrium position evolves into another
(D) Microeconomics is concerned primarily
with comparative statics rather than
dynamics.
Answer: C
22. Which of the following statements is most
closely associated with general equilibrium
analysis?
(A) Everything depends on everything else (B)
The equilibrium price of a factor depends on
the balancing of the forces of demand and
supply for that factor
(C) The equilibrium price of a good or service
depends on the balancing of the
forces of demand and supply for that good or
service
(D) None of these
Answer: A
23. The meaning of the word ‘economic’ is
most closely associated with the word:
(A) Free (B) Scarce
(C) Unlimited (D) Unrestricted
Answer: B
24. The market equilibrium for a commodity is
determined by
(A) The market demand for the commodity
(B) The market supply of the commodity
(C) The balancing of the forces of demand
and supply for the commodity
(D) Any of these
Answer: C
25. Microeconomics studies the decision
making behavior of:
(A) Society as a whole (B) An individual or
household
(C) A group of individuals (D) Economy as a
whole
Answer: B
26. The word micro was first used in Economics
by:
(A) Keynes (B) Ragnar Frisch
(C) J.R.Hicks (D) Marshall
Answer:B
27. A function refers to :
(A) The demand for a commodity
(B) The supply of a commodity
(C) The demand and supply of a commodity
service or resource
(D) The relationship between one dependent
variable and one or more
independent variables.
Answer:D
28. The validity of an economic theory is
judged by its power to:
(A) Explain an economic phenomenon
(B) Predict the course of an economic
phenomenon
(C) Prove or disprove a hypothesis
(D) Reveal the economic laws
Answer:A
29. The subject matter of economics is the
study of:
(A) Wealth (B) Welfare
(C) Scarcity (D) Scarcity and Choice
Answer:D
30. To whom do you attribute the ‘growth’
definition of economics?
(A) Paul Samuelson (B) Lionel Robbins
(C) Milton Friedman (D) Alfred Marshall
Answer:A
31. The first economist who coined the terms
micro economics and macroeconomics (A)
Ragnar Frisch (B) Keynes
(C) Marshall (D) Friedman
Answer:A
32. Microeconomics deals with:
(A) The theory of factor pricing
(B) The theory of product pricing
(C) The theory of economic welfare
(D) All the above
Answer:D
33. Prof. Robbin’s definition of Economics is:
(A) Scarcity definition (B) Growth definition
(C) Welath definition (D) Welfare definition
Answer:A
34. A theory is:
(A) An assumption (B) A validated hypothesis
(C) An ‘if then’ proposition (D) A hypothesis
Answer: B
35. The book ‘Principles of Economics’ was
written by:
(A) Keynes (B) Marshall
(C) Samuelson (D) Pigou
Answer:B

37. A mixed economy:
A) Is justified by the superiority of laissez faire
over government intervention.
B) Utilizes both market and nonmarket signals
to allocate goods and services.
C) Relies on the use of central planning by
private firms rather than the government.
D) All of the above.

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Answer: B
38. In the classical system, the basic
economic problems are solved by:
(A) Government (B) Price mechanism
(C) Economists (D) Central bank
Answer: B
39. Growth definition of economics was
concerned with:
(A) Scarcity (B) Welfare
(C) Wealth (D) Economic growth
Answer: D
40. When government directives do not
produce better economic outcomes, which
of the following has occurred?
A) Government failure. B) Market failure.
C) Macroeconomic failure. D) Scarcity.
Answer: A

41. Which of the following is an example of
government failure?
A) Bureaucratic delays.
B)Required use of pollution-control
technologies that are obsolete.
C) Inefficient incentives.
D) All of the above.

Answer: D

42. Macroeconomics focuses on the
performance of:
A) Individual consumers.
B) The overall economy.
C) Government agencies.
D) All of the above.

Answer: B
43. Macroeconomics focuses on the
performance of:
A) Individual consumers.
B) Specific firms.
C) Government agencies.
D) The economy as a whole.

Answer: D

44. Which of the following is a
macroeconomic statement?
A) The unemployment rate for the United
States rose to 7 percent in the last quarter.
B) The price of wheat fell to a ten year low in
July.
C) Unionized workers struck GM for higher
wages.
D) All of the above.

Answer: A
45. Which of the following are classified as
microeconomic goals?
A) Full employment, price stability, growth in
output.
B) The welfare of individual consumers and
business firms.
C) Production, pricing, and purchasing.
D) Land, labor, and capital.
Answer: B

46. The study of microeconomic theory
focuses on the:
A) Interaction of international trade and
domestic production of goods and services.
B) Operation of the entire economy.
C) Role of the banking system in the
economy.
D) Structure and performance of markets and
the operation of the price system.

Answer: D
47.Microeconomics is concerned with issues
such as:
A) The demand for CD players by individuals.
B) Maintaining a strong level of economic
growth.
C) The level of inflation in the economy.
D)All of the above.

Answer: A

48. Economic models are used by economists
to:
A) Predict economic behavior.
B) Formulate economic policy.
C) Explain economic behavior.
D) All of the above.

Answer: D
49. The Latin phrase ceteris paribus means:
A) The production-possibilities curve never
shifts.
B) Other things remain equal.
C) Laissez faire.
D) The invisible hand.

Answer: B
50. The ceteris paribus assumption:
A) Is necessary because of the complexity of
the real economy.
B) Makes it easier to formulate economic
theory and policy.
C) Increases the risk of errors in economic
predictions.
D) All of the above are correct.

Answer: D

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PRACTICE PAPER : 4

1. What Microeconomics is about?
A. Study of Business Environment
B. Study of financial position of the economy
C. Study of the Economy at Micro Level
D. None of the above
Answer: C

2. Scarcity is a condition that exists when
A) there is a fixed supply of resources.
B) there is a large demand for a product.
C) resources are not able to meet the entire
demand for a product.
D) All of the above.
Answer: C

3.Of the following statements note the one
that is not part of positive approach to
Economics.
(a) Massive production of Luxury cars is not in
the best interest of a less developed nation.
(b) Tobacco consumption reduces average
productivity of a worker.
(c) Tata Motors manufactures the INDICA cars
(d) India is a Mixed Economy.
Answer: A

4.Which of the following is the best example of
"what goods and services should be
produced?"
A) the use of a capital intensive versus a labor
intensive process of manufacturing textiles
B) the production of SUV’s versus the
production of sub-compact cars
C) the manufacturing of computer
workstations in China or in India
D) the leasing versus the purchasing of new
capital equipment
Answer:B

5. The purpose of making assumptions in
economic model building is to
(a) force the model to yield the correct
answer.
(b) minimize the amount of work an
economist must do.
(c) simplify the model while keeping important
details.
(d) express the relationship mathematically.
Answer:C
6.Economic models should have .............
(a) predictive accuracy
(b) predictive possibility
(c) Many assumptions
(d) Classes.
Answer:A

7. The scarcity (New) definition is suggested
by
a. A C Pigou b. Lionel Robbins
c. Adam Smith d. Alfred Marshall
Answer:B

8. An economic system:
a. Requires a grouping of private markets
linked to one another.
b. Is a particular set of institutional
arrangements and a coordinating
mechanism used to respond to the
economizing problem
c. Requires some sort of centralized authority
(such as government) to coordinate
economic
activity.
d. Is a plan or scheme that allows a firm to
make money at some other firm's expense
Answer:B

9.From society's point of view the economic
function of profits and losses is to:
a. Promote the equal distribution of real assets
and wealth.
b. Achieve full employment and price level
stability.
c. Contribute to a more equal distribution of
income.
d. Reallocate resources from less desired to
more desired uses.
Answer:D

10.Positive economic theory deals with
(a) What is or how the economic
problem facing the society are solved
(b) How the problem should be solved
(c) What to produce
(d) When to produce
Answer:B

11.The basic difference between
macroeconomics and microeconomics is :
A. microeconomics concentrates on
individual markets while macroeconomics
focuses primarily on international trade.
B. microeconomics concentrates on the
behaviour of individual consumers while
macroeconomics focuses on the behaviour of
firms.
C. microeconomics concentrates on the
behaviour of individual consumers and firms
while macroeconomics focuses on the
performance of the entire economy.

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D. microeconomics explores the causes of
inflation while macroeconomics focuses on
the causes of unemployment.
Answer: C

12. Which of the following is /are a non -
economic resource
(a) Air (b) Water (c)
Sunlight (d) All the three
Answer:D

13.Which of the statements below best
illustrates the use of the market process in
determining the allocation of scarce
resources?
A) "Let's make this product because this is
what we know how to do best."
B) "Although we're currently making a profit on
the products we make, we should consider
shifting to products where we can earn even
more money."
C) "Everyone is opening video stores, why
don't we?"
D) "We can't stop making this product.
This product gave our company its start."
Answer: A

14. A rational person does not act unless:
a. The action is ethical
b. The action produces marginal costs that
exceed marginal benefits
c. The action produces marginal benefits that
exceed marginal costs
d. The action makes money for the person

Answer: C
15.Economists view positive statements as
a. affirmative, justifying existing economic
policy.
b. optimistic, putting the best possible
interpretation on things.
c. descriptive, making a claim about how the
world is.
d. prescriptive, making a claim about how the
world ought to be.
Answer:C

16.Which of the following is the best example
of "how goods and services should be
produced?"
A) complying with the technical specifications
in the production of an aircraft
B) the production of jet aircraft for the air
force or for a commercial airline
C) the use of additional workers versus the use
of machines in the production of goods
D) the production of a new manufacturing
facility
Answer: C

17. The best definition of economics is
A) how choices are made under conditions of
scarcity.
B) how money is used.
C) how goods and services are produced.
D) how businesses maximize profits.
Answer: A

18. Microeconomics is not concerned with the
behavior of:
a. Consumers. b. Aggregate demand.
c. Firms. d. Industries.

Answer:B

19 The famous book on economics “An
Enquiry into the Nature and Cause of Wealth
of Nation” was Written by
a. Alfred Marshall b. Adam Smith
c. J M Keynes d. A C Pigou

Answer: B

20. Macro economics is concerned with
a. The theory of firm
b. Household expenditure
c. General price level
d. Individual consumer behavior
Answer: C

21. The subject matter of economics is
concerned with
A. Production
C. Distribution and exchange
B. Consumption
D. All of the above
Answer:D

22. Who remarked " Economics is concerned
with what economists do"
(a) Jacob Viner (b) AC Pigou
(c) Robbins (d) Samuelson
Answer: A

23. Who defined economics as "a study of
economic welfare which is that part of social
welfare that can be brought Directly or
indirectly into relation with the measuring rod
of money"
(a) A C Pigou (b) JN Keynes
(c) A. Linkon (d) Samulson

Answer:A

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24. By scientific method we mean
a. the use of modern electronic testing
equipment to understand the world.
b. the dispassionate development and testing
of theories about how the world works.
c. the use of controlled experiments in
understanding the way the world works.
d. finding evidence to support preconceived
theories about how the world works.
Answer: B

25. Identity the correct statement:
a) In deductive method logic proceeds from
the particular to the general
b) Micro & Macro Economics are
interdependent.
c) In a capitalist economy, the economic
problems are solved by planning commission.
d) Higher the prices lower is the quantity
demanded of a product is a normative
statement.
Answer:B



26. Find the correct match:
a) An enquiry into the nature and causes
of the wealth of the nation: A. C. pigou.
b) Science which deals with wealth:
Alfred Marshall.
c) Economics is the science, which studies
human behaviour as a relationship between
ends and scarce means which have
alternative uses: Robbins.
d) The range of our enquiry becomes
restricted to that part of social welfare that
can be brought directly or indirectly into
relation with the measuring rod of money:
Adam Smith.
Answer:C

27. The law of scarcity :
a) Does not –apply to rich, developed
countries
b) Applies only to the less developed
countries.
c) Implies that consumers want will be
satisfied in a socialistic system.
d) Implies that consumer’s wants will never
be completely satisfied.
Answer: D

28. Who expressed the view that
“Economics is neutral between ends”?
a) Robbins
b) Marshall
c) Pigou
d) Adam Smith
Answer: A

29. Which of the following is the best
general definition of the study of
Economics?
a) Inflation and unemployment in a
growing economy.
b) Business decision making under foreign
completion.
c) Individual and social choice in the face
of scarcity.
d) The best way to invest in the stock
market.
Answer: C

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

31. Rational decision making requires that:
a) One’s choices be arrived at logically
and without error.
b) One’s choices be consistent with one’s
goals.
c) One’s choices never vary.
d) One makes choices that do not involve
trade-offs.
Answer: B

32. Economics, according to Lionel
Robbins , is a _____
a) Normative science.
b) Applied science.
c) Positive science.
d) Experimental science.
Answer: A

33. Which of the following is a normative
statement?
a) Planned economies allocate resources
via government departments.
b) Most transitional economies have
experienced problems of falling output and
rising prices over the past decade.
c) There is a greater degree of consumer
Sovereignty in market economies than
planned economies.

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d) Reducing inequality should be a major
priority for mixed economies.
Answer: D

34. Macro economics is also called
economics.
a) Applied
b) Aggregate
c) Experimental
d) None of the above
Answer: B

35. An example of positive ‘economic
analysis would be:
a) An analysis of the relationship between
the price of food and the quantity purchased.
b) Determining how much income each
person should be guaranteed.
c) Determining the ‘fair’ price for food
d) Deciding how to distribute the output
of the economy.
Answer:A

36. Identity the correct statement:
a) In deductive method logic proceeds
from the particular to the general
b) Micro & Macro Economics are
interdependent.
c) In a capitalist economy, the economic
problems are solved by planning commission.
d) Higher the prices lower is the quantity
demanded of a product is a normative
statement.

Answer: B

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

38. Which of the following does not
suggest a macro approach for India?
a) Determining the GNP of India.
b) Finding the causes of failure of X and
co.
c) Identifying the causes of inflation in
India.
d) Analyses the causes of failure of
industry in providing large-scale employment.
Answer: B

39. Economics goods are considered
scarce resources because they
a) Cannot be increased in quantity
b) Do not exist in adequate quantity to
satisfy social requirements,
c) Are of primary important in satisfying
social requirement.
d) Are limited to man made goods
Answer: B

40. From the national point of view which
of the following indicates micro approach?
a) Per capital income of India.
b) Under employment in agricultural
sector.
c) Lock out in TELCO.
d) Total savings in India.
Answer: C

41. In a free market economy the
allocation of resources is determined by
a) Votes taken by consumers.
b) A central planning authority.
c) By consumer preference.
d) The level of profits of firms.
Answer: C

42. A capitalist economy uses…………as
the principal means of allocating resources.
a) Demand
b) Supply
c) Efficiency
d) Prices
Answer:D

43. In a free market economy, when
consumers increase their purchase of a good
and the level of ……. Exceeds………
……………. Then prices tend to rise.
a) Demand, supply
b) Supply, demand
c) Prices, demand
d) Profits, supply
Answer:A

44. Which of the following would be
considered a disadvantage of allocating
resources using a market system?
a) Income will tend to be unevenly
distributed.
b) Significant unemployment may occur.
c) It cannot prevent the wastage of
scarce economic resources.
d) Profits will tend to be low.
Answer: A

45. In a mixed economy,

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a) All economic decisions are taken by
the central authority.
b) All economics decisions are taken by
private entrepreneurs.
c) Economic decisions are partly taken by
the state and partly by the private
entrepreneurs.
d) None of the above.
Answer: C

46. The central problem in economics is
that of
a) Comparing the success of command
versus market economies.
b) Guaranteeing that production occurs
in the most efficient manner.
c) Guaranteeing a minimum level of
income for every citizen.
d) Allocating scarce resources in such a
manner that society’s unlimited needs or
wants are satisfied as well as possible.
Answer: D
47. ‘Economics is what Economists do’ is
given by
a) Jacob Viner
b) Henry Smith
c) Pigou
d) Paul A. samuelson
Answer:A

48 Economics may be defined as the science
that explains …………………….
a) The choices that we make as we cope with
scarcity
b) The decisions made by politicians
c) The decisions made by households
d) All human behavior
Answer: A

49. Under inductive method , the logic
proceeds from
a) General to particular
b) Positive to normative
c) Normative to positive
d) Particular to general

Answer:D

50. Which of the following is correct?
a) Normative economics is not concerned
with value judgements .
b) A market is a process that reconciles
consumer decision, production decisions and
labour decisions.
c) A mixed economy has a certain level of
government intervention in the economy
along with private sector ownership of the
economy.
d) (b) and (c).

Answer:D



























UNIT – 2
Utility & Demand Analysis: Utility – Meaning, Utility analysis, Measurement of
utility, Law of diminishing marginal utility, Indifference curve, Consumer’s equilibrium
- Budget line and Consumer surplus. Demand - Concept of Demand, Types of Demand,
Determinants of Demand, Law of Demand, Elasticity of Demand, Exceptions to Law
of Demand. Uses of the concept of elasticity. Forecasting: Introduction, Meaning
and Forecasting, Level of Demand Forecasting, Criteria for Good Demand
Forecasting, Methods of Demand Forecasting, Survey Methods, Statistical Methods,
Qualitative Methods, Demand Forecasting for a New Products. (Demand Forecasting
methods - Conceptual treatment only numericals not expected)

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PRACTICE PAPER : 1
1. Demand in economic sense means-
(a) mere desire for a commodity
(b) mere ability to pay price of the commodity
(c) mere wiling to pay the price of the commodity
(d) desire backed by ability and willingness to pay
for the commodity desired
Answer:
2. In economics, demand refers to-
(a) quantity demanded at a particular time
(b) quantity demanded backed by ability to pay
(c) quantity demanded of all goods
(d) quantity demanded at a particular price in a
given period of time
Answer:
3. The concept of demand demonstrates that-
(a) demand is always with reference to price
(b) demand is referred to in a given period of time
(c) buyer’s ability and willingness to pay
(d) all the above
Answer:
4. Demand is a
(a) flow concept Le. quantity per unit of time
(b) stock concept
(c) wealth concept
(d) none of the above
5. Demand concept explains the ________
behaviour in response to change in price of a
good.
(a) producer’s
(b) seller’s
(c) consumer’s
(d) none of the above
Answer:
6. Individual Demand is also called-
(a) industrial demand
(b) market demand
(c) household’s demand
(d) all the above
Answer:
7. ________ means quantity demanded of a good
by a single consumer at various prices per unit of
time.
(a) Market Demand
(b) Individual Demand
(c) Industrial Demand
(d) None of the above
Answer:
8. _______ means the aggregates of the quantities
demanded by all consumers in the market at
different prices per unit of time.
(a) Market Demand
(b) Individual Demand
(c) Industrial Demand
(d) Household Demand
Answer:
9. All but one are the factors which affect
individual demand. Find the odd one out.
(a) Price of related good
(b) Income of the consumer
(c) Tastes and preferences of consumer
(d) Number of consumers in the market
Answer:
10. _________ is a tabular presentation showing
different quantities demanded by buyers at
different levels of prices in a given period.
(a) Supply Schedule
(b) Demand Schedule
(c) Production Schedule
(d) Cost Schedule
Answer:
11. A demand schedule is shown as-
(a) a result of increase in the size of the family
(b) a result of change in tastes and preferences
(c) a function of price
(d) all the above
Answer:
12. Market Demand is the sum total of-
(a) all quantities that producer’s can produce
(b) all quantities actually sold in the market
(c) all quantities demanded by individual
households and consumers
(d) all the above
Answer:
13. Demand of a good of several consumers
when added together is called _______ demand.

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(a) individual
(b) market
(c) joint
(d) independent
Answer:
14. When a good can be used to satisfy two or
more wants, it is said to have _______ demand.
(a) composite
(b) competitive
(c) joint
(d) market
Answer:
15. Indirect demand of a good is also known as
_______ demand.
(a) direct
(b) derived
(c) joint
(d) competitive
Answer:
16. Which of the following is a determinant of
Individual Demand?
(a) Cost of production
(b) Nature of commodity
(c) Economic Policies of the Government
(d) Tastes and Preferences of consumers
Answer:
17. Which of the following is NOT the determinant
of demand?
(a) Price of the commodity
(b) Price of related commodities
(c) Income of consumer
(d) None of the above
Answer:
18. How are APPLES and ORANGES related when
as a result of rise in price of Apples, demand for
Oranges increases?
(a) Substitute goods
(b) Complementary goods
(c) Normal goods
(d) Inferior goods
Answer:
19. If two goods are complementary then rise in
the price of one results in-
(a) rise in demand for the other
(b) fall in demand for the other
(c) rise in demand for both
(d) none of these
Answer:
20. If the demand for CNG increases as price of
petrol increases, the two goods are-
(a) Normal goods
(b) Complementary goods
(c) Substitute goods
(d) Superior goods
Answer:
21. Comforts lies between-
(a) inferior goods and necessaries
(b) luxuries and inferior goods
(c) necessaries and luxuries
(d) none of the above
22. When price of commodity rises, the demand
for it _______ .
(a) rises
(b) contracts
(c) remain constant
(d) becomes negative
Answer:
23. When the price of petrol goes up, demand for
two-wheelers will-
(a) rise
(b) fall
(c) remain same
(d) none of these
Answer:
24. An increase in the income of a consumer has
effect on demand in general.
(a) no
(b) negative
(c) opposite
(d) positive
Answer:
25. The demand for Scooter and petrol is an
example of _______ demand.
(a) joint
(b) composite
(c) competitive
(d) market
Answer:
26. _______ goods are those goods which are used
for the production of other goods.
(a) Durable
(b) Producer’s
(c) Non-Durable
(d) Consumer’s
Answer:

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27. _______ goods are those which are used for
final consumption.
(a) Durable
(b) Producer’s
(c) Non-Durable
(d) Consumer’s
Answer:
28. Bread, Milk, Readymade clothes, T.V., etc. are
examples of _______ goods
(a) perishable
(b) producer’s
(c) consumer’s
(d) inferior
Answer:
29. The goods which cannot be consumed more
than once, like milk are known as _______ goods.
(a) non-durable consumer goods
(b) producer’s
(c) inferior
(d) durable consumer goods
Answer:
30. _______ goods meets only our current
demand.
(a) producers
(b) durable consumer goods
(c) non-durable consumer goods
(d) inferior
Answer:
31. The goods which can be consumed more
than once over a period of time are known as
_______ goods.
(a) non-durable consumer goods
(b) producer’s
(c) durable consumer goods
(d) inferior
Answer:
32. When demand of any good depends upon
the demand of another good, it is said to have
_______ demand.
(a) joint
(b) derived
(c) competitive
(d) direct
33. The total demand for steel in the country
denotes _______ demand.
(a) industry
(b) company
(c) both ‘a’ and ‘b’
(d) autonomous
34. If the demand for a product is independent of
the demand for other goods, it is called as _______
demand.
(a) company
(b) industry
(c) autonomous
(d) derived
35. If the construction activity in housing sector,
infrastructure, etc. rises, the demand for cement
will _______ as it has _______ demand.
(a) rise ; autonomous
(b) fall; autonomous
(c) rise ; derived
(d) none of these
36. Demand for steel produced by Tata Iron and
Steel Company is an example of _______ demand.
(a) industry
(b) company
(c) autonomous
(d) joint
37. When demand of any good reacts
immediately to price changes, income changes,
etc. it is said to have _______ demand.
(a) short-run
(b) long-run
(c) very short run
(d) very long run
38. A relative price is-
(a) price expressed in terms of money
(b) what you get paid for babysitting your cousin
(c) the ratio of one price to another
(d) equal to a money price
39. The quantity demanded of a good or service
is the amount that-
(a) consumer plan to buy during a given period at
a given price.
(b) firms are willing to sell during a given time
period at a given price.
(c) a consumer would like to buy but may not be
able to afford.
(d) is actually bought during a given period at a
given price.
40. Coca-Cola and Thumbs-Up are substitutes. A
rise in the price of Coca-Cola will _______ the
demand of Thumbs-Up and the quantity
demanded of Thumbs-Up will _______ .
(a) increase ; increase
(b) increase;decrease
(c) decrease ; decrease
(d) decrease;increase
41. If the price of Orange Juice falls, the demand
for Apple Juice will _______ .
(a) increase
(b) decrease

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(c) remain the same
(d) become negative
42. The demand for consumer goods is a _______
demand.
(a) direct
(b) indirect
(c) constant
(d) company
43. If the price of inferior goods fall, the demand
for them will _______.
(a) rise
(b) fall
(c) remain constant
(d) become zero
44. The Law of Demand states _______ relation
between demand and price of a commodity.
(a) a direct
(b) positive
(c) an indirect
(d) no
45. When total demand for a commodity whose
price has fallen increases, it is due to
(a) income effect
(b) substitution effect
(c) complementary effect
(d) price effect
46. With a fall in the price of a commodity
(a) Consumer’s real income increases
(b) Consumer’s money income increases
(c) Consumer’s real income falls
(d) Consumer’s money income falls
47. When we draw a market demand curve, we
_______.
(a) do not consider tastes, incomes and all prices
(b) assume that tastes, incomes and all other
prices change in the same way price changes
(c) assume that tastes, incomes and all other
prices are irrelevant
(d) assume that tastes, incomes and all other
prices remain the same
48. All but one of the following are assumed to
remain the same while drawing individual’s
demand curve for a commodity. Which are is it?
(a) The tastes and preferences of the consumer
(b) Income of consumer
(c) The price of the commodity
(d) The prices of related commodities
49. A fall in price of a commodity leads to _______.
(a) a shift in demand curve
(b) a rise in consumer’s real income
(c) a fall in demand
(d) none of the above
50. If a fall in price of ‘y’ results in a decrease in
the sale of ‘x’, the two good appear to be-
(a) substitute goods
(b) complementary goods
(c) inferior goods
(d) neutral goods


PRACTICE PAPER : 2

51. Which of the following is not a complementary
good for pen?
(a) refills
(b) paper
(c) notebook
(d) rice
52. _______ goods are the goods which can be
used with equal case in place of each other.
(a) Neutral
(b) Normal
(c) Complementary
(d) Substitute
53. Which of the following pairs of goods are an
example of substitutes?
(a) Tea and Sugar
(b) Tea and Coffee
(c) Pen and Ink
(d) Shirt and Trouser
54. When the price of a substitute of good ‘X’ falls,
the demand for good ‘X’
(a) rises
(b) falls
(c) remains unchanged
(d) None of these
55. If the demand rises with the rise in consumer’s
real income, such a good is called _______.
(a) Normal goods
(b) Neutral goods
(c) Inferior goods
(d) Luxury goods
56. Giffen goods are-
(a) Normal goods
(b) Inferior goods
(c) Luxury goods
(d) Neutral goods
57. As the consumer’s income increases, the
demand for necessaries of life will increase
_______ to the increase in income.
(a) Less than proportionate
(b) More than proportionate
(c) Proportionate
(d) Nothing can be said

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58. As the consumer’s income increases, the
demand for comforts and luxuries will increase
_______ to the increase in income.
(a) Less than proportionate
(b) More than proportionate
(c) Proportionate
(d) Nothing can be said
59. During boom period in economy, the demand
for goods in general _______.
(a) rises
(b) falls
(c) remains same
(d) none of these
60. Larger the size of population of a country
_______ is the demand for goods and services in
general.
(a) lower
(b) ineffective
(c) neutral
(d) higher
61. In case the consumer expects a steep rise in
price of Potatoes in future, his current demand for
it will _______.
(a) remain same
(b) fall
(c) rise
(d) none of the above
62. All but one of the good’s demand is not
affected by changes in weather conditions-
(a) Ice-cream
(b) Woollen clothes
(c) Cold drinks
(d) Wheat
63. If the government increase the rate of indirect
taxes on goods and services, the demand for
then will _______ in general.
(a) rise
(b) fall
(c) remain neutral
(d) be ineffective
64. If the government reduces the tax on any pro-
duct, the demand for the product _______ in the
short run.
(a) rises
(b) falls
(c) remain unchanged
(d) tax has nothing to do with the demand of any
product
65. If the demand for petrol remains unchanged
with rise in its price, it means petrol is a _______
(a) Normal good
(b) Necessity
(c) Luxury good
(d) Inferior good
66. If quantity demanded of good ‘X’ is plotted
against the price of its substitute good ‘Y’, the
demand curve will be-
(a) Vertical Straight line
(b) Positively sloped
(c) Horizontal Straight line
(d) Negatively sloped
67. Consider the following figure:


In the above figure, RS part of the demand curve
represents-
(a) Superior good
(b) Inferior good
(c) Normal good
(d) Giffen’s good
68. In case of normal goods the income effect is
_______
(a) zero
(b) negative
(c) positive
(d) constant
69. Income effect on demand of a good is
_______.
(a) positive for normal goods
(b) always positive
(c) negative for normal goods
(d) always negative
70. The Law of Demand is explained by-
(a) Cardinal approach
(b) Ordinal approach
(c) Both ‘a’ and ‘b’
(d) Neither ‘a’ nor ‘b’
71. The Law of Demand refers to functional
relation between-
(a) Price & Supply
(b) Price & Cost
(c) Price & Income
(d) Price & Demand
72. The term “Ceteris Paribus” in the Law of
Demand means-
(a) All factors except one remain constant

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(b) All factors remain constant
(c) All factors are variable
(d) None of the above
73. Which of the following is a variable and
influencing factor in the Law of Demand?
(a) Consumer’s Income
(b) Consumer’s Tastes and Preferences
(c) Price of related goods
(d) Price of the good
74. The phrase “Other things being equal” in the
Law of Demand means-
(a) Income of the consumer remain unchanged
(b) Price of related goods remain unchanged
(c) Tastes and Preferences of consumer remain
unchanged
(d) All the above
75. The total effect of price change of a good is-
(a) Substitution Effect + Income Effect
(b) Substitution Effect + Price Effect
(c) Substitution Effect + Demonstration Effect
(d) Demonstration Effect + Veblen Effect
76. Substitution Effect subscribe to the inverse
relation between Px and Qx in case of-
(a) normal goods only
(b) inferior goods only
(c) normal and inferior goods both
(d) none of the above
77. Income Effect does not subscribe to the
inverse relation between Px and Qx in case of-
(a) both normal and inferior goods
(b) inferior goods
(c) normal goods
(d) none of the above
78. The Law of Demand will fail in case of inferior
goods only if-
(a) Substitution Effect is greater than Income
Effect
(b) Income Effect is greater than’Substitution
Effect
(c) Both ‘a’ and ‘b’
(d) Neither ‘a’ nor ‘b’
79. The Law of Demand is a _______ statement.
(a) Positive
(b) Normative
(c) Descriptive
(d) Both ‘a’ and ‘c’
80. _______ refers to the effect of change in the
price of a product on the consumer’s purchasing
power.
(a) Real Income Effect
(b) Substitution Effect
(c) Consumer’s Surplus
(d) None of the above
81. When the price of Thumbs-up falls, other things
being constant, buyers substitute Thumbs-up for
Coca-Cola. This is called-
(a) Price Effect
(b) Substitution Effect
(c) Income Effect
(d) Veblen Effect
82. _______ refers to the buyer’s reaction to a
change in the relative prices of two products,
keeping the total utility constant.
(a) Consumer’s Surplus
(b) Income Effect
(c) Substitution Effect
(d) None of the above
83. The Law of Demand can be explained by-
(a) The Law of Diminishing Marginal Utility
(b) Indifference Curves
(c) Both ‘a’ and ‘b’
(d) Neither ‘a’ nor ‘b’
84. Consumers buy a good till Px = MUx. If the
price falls, the consumer will reach equilibrium-
(a) at a lower quantity
(b) at a higher quantity
(c) at zero quantity level
(d) all the above
85. “Petrol is becoming cheaper, yet the demand
for cars is not rising”. This statement indicates that-
(a) The Law of Demand is not operative for cars
(b) The Law of Demand is operative for petrol
(c) The Demand Curve for cars will shift
(d) All the above
86. Downward slope of the demand curve shows-
(a) positive relationship between price and
quantity demanded
(b) inverse relationship between price and
quantity demanded
(c) no relationship between price and quantity
demanded
(d) none of the above
87. In case of NORMAL GOODS, demand curve
shows:
(a) a negative slope
(b) a positive slope
(c) zero slope
(d) none of these
88. Law of Demand fails in case of –
(a) normal goods
(b) Giffen goods
(c) inferior goods
(d) both ‘b’ and ‘c’
89. In case of Giffen’s Paradox, the slope of the
demand curve is-
(a) parallel to X-axis

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(b) positive
(c) negative
(d) parallel to Y-axis
90. A Giffen good is one for which a small change
in price results in-
(a) zero income effect out weighted by a positive
substitution effect
(b) zero income effect being equal to zero
substitution effect
(c) negative income effect out weighed by a
positive substitution effect
(d) none of these
91. The Law of Demand indicates the
(a) direction of change in demand of a
commodity
(b) magnitude/amount of change in demand of
a commodity
(c) both ‘a’ and ‘b’
(d) elasticity of demand
92. In case of Giffen goods, demand varies
_______ with the price.
(a) inversely
(b) directly
(c) proportionately
(d) none of these
93. Analysis of the relationship between demand
of a commodity and prices of related
commodities is-
(a) Price Demand analysis
(b) Income Demand analysis
(c) Cross Demand analysis
(d) Market Demand analysis
94. _______ observed that when the price of
inferior goods fall, the demand for such goods
also fall.
(a) Adam Smith
(b) Dr. Alfred Marshall
(c) Ragnar Frisch
(d) Sir Robert Giffens
95. The Law of Demand was propounded by
_______ in his book ‘Principles of Economics’.
(a) Lord Keyens
(b) Adam Smith
(c) Dr. Alfred Marshall
(d) Ragnar
96. The tendency of low income group to imitate
the consumption pattern of high income group is
known as _______ effect.
(a) Demonstration
(b) Copy
(c) Prestige
(d) Veblen
97. The Law of Demand is applicable for _______.
(a) Giffen’s Goods
(b) Prestige Goods
(c) Necessary Goods
(d) Normal Goods
98. When price changes and proportionate
change in market demand is more than
proportionate change in individual demand
implies that the market demand curve is _______
than the individual demand curves.
(a) Steeper
(b) Flatter
(c) Vertical
(d) None of the above
99. A positively sloped demand curve implies
(a) Violation of the law of demand
(b) Giffen good
(c) Income effect is negative and greater than
substitution effect
(d) All the above
100. An increase in consumer’s income will
increase demand for a _______ but decrease
demand for a _______.
(a) substitute good; inferior good
(b) normal good ; inferior good
(c) substitute good ; complementary
PRACTICE PAPER : 3
101. When the quantity of a good that a buyer
demands rises when there is growth of purchases
by other individuals, such an effect is called
_______
(a) Bandwagon Effect
(b) Snob Effect
(c) Veblen Effect
(d) None of the above
102. When the quantity of a commodity that an
individual buyer demand falls in response to the
growth of purchases by other buyers, such an
effect is called _______
(a) Bandwagon Effect
(b) Snob Effect
(c) Veblen Effect
(d) None of the above
103. Some buyer’s demand more of certain
commodities at a higher price, such an effect is
called _______.
(a) Bandwagon Effect
(b) Snob Effect
(c) Veblen Effect
(d) None of the above
104. The market demand curve in case of Veblen
Effect is _______.
(a) steeper

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(b) flatter
(c) vertical
(d) horizontal
105. The market demand curve in case of
Bandwagon Effect is _______.
(a) less elastic
(b) steeper
(c) flatter
(d) horizontal
106. The market demand curve in case of Snob
Effect is _______.
(a) flatter
(b) steeper
(c) less elastic
(d) both ‘b’ and ‘c’
107. A downward sloping Engel Curve shows –
(a) Normal goods
(b) Inferior goods
(c) Substitute goods
(d) Complementary goods
108. Assume that the market demand curve for
Dinshaw Ice cream is known and given to us. With
summer setting in, price remaining the same the
consumers would –
(a) shift to a lower demand curve leftward
(b) move upward along the same demand curve
(c) shift to a higher demand curve rightward
(d) move downward along the same demand
curve
109. An exceptional demand curve is one that
slopes-
(a) upward to the right
(b) downward to the right
(c) upward to the left
(d) horizontal
110. What will be the impact on the demand
curve of CARS when the price of petrol rises?
(a) There will be downward movement on
demand curve
(b) Demand curve will shift to left
(c) There will be an upward movement on
demand curve
(d) Demand curve will shift to right
111. What will be the impact on the demand
curve of DESKTOP COMPUTERS when the price of
LAPTOPS increase?
(a) There will be downward movement on
demand curve
(b) Demand curve will shift to left
(c) There will be an upward movement on
demand curve
(d) Demand curve will shift to right
112. What will be the impact on the demand
curve of SUGAR with increase in its price?
(a) Downward movement along the demand
curve
(b) Leftward shift of the demand curve
(c) An upward movement along the demand
curve
(d) Rightward shift of the demand curve
113. The demand for TROUSERS will lead to _______
due to change in the preference in favour of
JEANS.
(a) Extension in Demand of trousers
(b) Increase in Demand of trousers
(c) Contraction in Demand of trousers
(d) Decrease in Demand in trousers
114. The demand curve for BAJRA will when a
poor person’s income rises.
(a) shift to the right
(b) shift to the left
(c) be downward sloping
(d) none of the above
115. Match the following—


116. If more is demanded at the same price or the
same quantity is demanded at a higher price, it is
known as-
(a) Extension of Demand
(b) Contraction of Demand
(c) Increase in Demand
(d) Decrease in Demand
117. A downward movement along the same
demand curve means –
(a) more is demanded when the price of good
falls
(b) more is demanded at the same price
(c) less is demanded at the same price
(d) less is demanded when the price of good rises
118. A leftward shift of the demand curve shows-
(a) more is demanded at the same price
(b) less is demanded when the price of good rises
(c) less is demanded at the same price

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(d) more is demanded when the price of good
falls
119. When same quantity of a good is demanded
at a lower price, it is known as-
(a) Extension of Demand
(b) Increase in Demand
(c) Contraction of Demand
(d) Decrease in Demand
120. When less quantity is demanded as the price
of good rises, there is ________.
(a) Downward movement along the demand
curve
(b) Leftward shift of the demand curve
(c) An upward movement along the demand
curve
(d) Rightward shift of the demand curve
For Q. Nos. 121 to 124 refer the following demand
equation Q = 180 – 6p
121. At what price no one would be willing to buy
the commodity?
(a) Rs. 20
(b) Rs. 30
(c) Rs. 40
(d) Rs. 15
122. If the commodity is given free Le. if the
demand is autonomous, what is the quantity
demanded?
(a) 180
(b) 160
(c) 140
(d) 120
123. If the price of the commodity falls down to Rs.
1, by how much will the quantity demanded
change?
(a) 6
(b) 5
(c) 12
(d) 10
124. The total quantity demanded when the price
is Rs. 1 p.u. is-
(a) 180
(b) 174
(c) 190
(d) 186
For Q. Nos. 125 to 127 refer the following demand
equation
Qx = 12 – 2 Px
125. What would be the quantity demanded at a
price of Rs. 3?
(a) 4 units
(b) 5 units
(c) 6 units
(d) 8 units
126. What would be the price when quantity
demanded is zero?
(a) Rs. 8
(b) Rs. 4
(c) Rs. 5
(d) Rs. 6
127. What would be the quantity demanded
when the price is zero?
(a) 12 units
(b) 10 units
(c) 22 units
(d) 20 units
128. The demand function of a commodity ‘X’ is
given by Qx = 20 – 3 Px. What would be he value
of Px when the corresponding value of Qx = 14.
(a) Rs. 5
(b) Rs. 4
(c) Rs. 3
(d) Rs. 2
129. At a price of Rs. 10 p.u. the market demand
of a commodity is 58 units, out of which consumer
‘A’ has purchased 20 units and consumer ‘B’ has
purchased 10 units. How much quantity consumer
‘C’ has purchased?
(a) 28 units
(b) 26 units
(c) 24 units
(d) 22 units
130. The linear demand function is given as- Q =
80 – 20 P. Derive the market demand function
when there are 100 consumers in the market.
(a) Q = 8000 – 20 P
(b) Q = 80 – 2000 P
(c) Q = 8000 – 2000 P
(d) None of the above
131. All but one can be referred as Variations in
Demand. Which one is not variation in demand?
(a) Movement along the same demand curve
(b) Shifting of demand curve
(c) Changes in the Quantity Demanded
(d) Expansion and Contraction of Demand
132. In case of Expansion and Contraction of
Demand, the demand curve-
(a) shifts to the right
(b) shifts to the left
(c) remains the same
(d) none of the above
133. A movement along the demand curve
means-
(a) expansion of demand
(b) contraction of demand

29. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 29

(c) changes in the quantity demanded
(d) all the above
134. Change in the demand of a commodity due
to the factors other than price is known as-
(a) Increase and Decrease in Demand
(b) Changes in Demand
(c) Shift in Demand
(d) All the above
135. Increase in demand leads to-
(a) Leftward shift of the demand curve
(b) Rightward shift of the demand curve
(c) Upward movement on the same demand
curve
(d) Downward movement on the same demand
curve
136. Which of the following would result in the
shifting of the demand curve?
(a) Increase in the tax on shoes
(b) Growth in the size of population
(c) Changes in weather conditions
(d) All the above
137. Shift in demand does not take place due to-
(a) Change in consumer’s tastes and preferences
(b) Advertisement
(c) Trade conditions
(d) Change in the price of the commodity
138. A rightward shift in the demand curve for
Bread would be predicted from-
(a) A decrease in the number of breakfast eaters
(b) A change in tastes
(c) A fall in the price of Bread
(d) A rise in the price of Corn Flakes
139. Consider the following demand curve-

State whether-
(a) The two goods are complementary
(b) The two goods are substitutes
(c) The two goods are not related
(d) None of the above
140. Consider the following figure-

It shows-
(a) Inferior goods
(b) Giffen goods
(c) Normal or Superior goods
(d) All the above
141. Consider the following figure-

Demand
It shows demand curve for-
(a) Necessities
(b) Comforts and Luxuries
(c) Inferior Goods
(d) None of the above
142. Consider the following figure-

It shows demand curve for-
(a) Necessities
(b) Comforts and Luxuries
(c) Inferior Goods
(d) None of the above
143. Consider the following figure-

It shows demand curve for-
(a) Necessities

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(b) Comforts and Luxuries
(c) Inferior Goods
(d) None of the above
144. Which of the following is shown in the figure?

(a) An increase in demand
(b) Indifference Curve
(c) Supply Curve
(d) None of the above
145. Other things being equal a decrease in
demand can be caused by-
(a) A rise in the price of the commodity
(b) A rise in the income of the commodity
(c) A fall in the price of the commodity
(d) A fall in the income of the consumer
146. A rational consumer is a person who
(a) behaves judiciously all the time
(b) is not influenced by the advertisement
(c) knows the prices of goods in different markets
and buy the cheapest
(d) has perfect knowledge of the market
147. A normal demand curve of a commodity-
(a) is vertical straight line curve
(b) has a negative slope
(c) is horizontal straight line curve
(d) has a positive slope
148. If the quantity demanded of a commodity is
plotted against the price of a substitute goods
ceteris paribus the curve is expected to be-
(a) Vertical
(b) Negatively sloped
(c) Horizontal
(d) Positively sloped
149. Income effect operates when there is an-
(a) increase in real income due to fall in price of
the commodity
(b) increase in real income due to rise in price of
the commodity
(c) increase in real income due to rise in demand
of the commodity
(d) increase in money income due to fall in the
price of the commodity
150. Who explained the abnormal shape of
demand curve for diamonds through the doctrine
of conspicuous consumption?
(a) Thorstein Veblen
(b) Robert Giffen
(c) David Ricardo
(d) Alfred Marshall

PRACTICE PAPER : 4
151. Conspicuous good are also known as -
(a) prestige goods
(b) snob goods
(c) Veblen goods
(d) all the above
152. Elasticity of demand is defined as the
responsiveness of the quantity demanded of a
good to changes in
(a) price of the commodity
(b) price of related goods
(c) income of the consumer
(d) all the above
153. ________ was the economist to formulate the
concept of price elasticity of demand.
(a) Alfred Marshall
(b) Adam Smith
(c) Paul Samuelson
(d) Edwin Cannon
154. The concept of Elasticity of Demand
whenever referred unless otherwise specified
always means-
(a) Price Elasticity of Demand
(b) Income Elasticity of Demand
(c) Cross Elasticity of Demand
(d) All the above
155. The concept of price elasticity of demand
analyses-
(a) direction of change in response to change in
price of the commodity
(b) degree of change in response to change in
price of the commodity
(c) absolute change in response to change in
price of the commodity
(d) none of these
156. When there is no change in quantity
demanded in response to any change in price, it
is a situation of-
(a) infinite price elasticity
(b) unitary price elasticity
(c) zero price elasticity
(d) high price elasticity
157. Price Elasticity of Demand is defined as-
(a) Change in quantity demanded ÷ Change in
Price
(b) % Change in quantity demanded ÷ % Change
in Price
(c) Change in quantity demanded ÷ % Change in
Price

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(d) % Change in quantity demanded ÷ Change in
Price
158. Price Elasticity of Demand is given by-

159. When percentage change demand is less
than percentage change in price, demand is-
(a) perfectly elastic
(b) perfectly inelastic
(c) less than unitary elastic
(d) more than unitary elastic
160. When percentage change in demand is
equal to percentage change in price, demand is-
(a) perfectly elastic
(b) unitary elastic
(c) perfectly inelastic
(d) more elastic
161. Price Elasticity of demand is always because
of relationship between price and quantity
demanded
(a) negative ; inverse
(b) positive ; direct
(c) negative ; positive
(d) positive ; inverse
162. Coefficient of price elasticity of demand
ranges from to
(a) one ; infinity
(b) zero ; infinity
(c) zero ; one
(d) none of the above
163. When there is an infinite demand at a
particular price and demand becomes zero with
a slight rise in the price then
(a) demand by commodity is perfectly elastic
(b) Ed = ∞
(c) demand curve is horizontal straight line
parallel to X-axis
(d) all the above
164. When percentage in quantity demanded is
more than percentage change in price then
(a) demand of commodity is highly elastic
(b) Ed > 1 and demand curve is flatter
(c) Ed < 1 and demand curve is steeper
(d) Only ‘a’ and ‘b’ 1
165. When demand curve is parallel to X-axis,
elasticity of demand is-
(a) unity
(b) zero
(c) greater than unity
(d) infinity
166. Which curve is called rectangular hyperbola?
(a) Highly Elastic Demand Curve
(b) Less Elastic Demand Curve
(c) Unitary Elastic Demand Curve
(d) None of the above
167. When demand curve is parallel to Y-axis,
elasticity of demand is-
(a) unity
(b) zero
(c) less than unity
(d) more than unity
168. As the demand curve becomes flatter and
flatter, the elasticity of demand becomes-
(a) higher
(b) lower
(c) equal to infinity
(d) equal to zero
169. When the demand for a commodity does not
change with the increase in its price from Rs. 2 to
Rs. 5, then elasticity of demand is
(a) E = ∞
(b) Ed = 0
(c) Ed < 1
(d) Ed > 1
170. Slope of perfectly elastic demand curve is
equal to ________
(a) 0
(b) 1
(c) 2
(d) 3
171. On all points of a rectangular hyperbola
demand curve, elasticity of demand is –
(a) equal to one
(b) zero
(c) more than one
(d) less than one
172. When slope of demand curve = 0, the
elasticity of demand is-
(a) 0
(b) 1
(c) oo
(d) none of the above
173. To say that the demand for a commodity is
elastic means-
(a) That the demand curve slopes downward to
the right
(b) That more is sold at a lower price
(c) That a rise in price will increase total revenue
(d) That the change in quantity sold is
proportionately greater than the change in price

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174. A demand curve is perfectly inelastic if-
(a) a rise in price causes a fall in quantity
demanded
(b) a fall in price causes rise in sellers total receipts
(c) the commodity in question is very perishable
(d) a change in price does not change quantity
demanded
175. When the demand curve is vertical straight
line, demapd is-
(a) perfectly elastic
(b) perfectly inelastic
(c) relatively elastic
(d) relatively inelastic
176. For goods with perfectly inelastic demand-
(a) ∆q = 0
(b) ∆q < ∆p
(c) ∆q = ∆p
(d) ∆p = 0
177. For goods with less elastic demand-
(a) ∆q > ∆p
( b) ∆q = ∆p
(c) ∆q < ∆p
(d) none of the above
178. If the demand of a commodity is less elastic
the demand curve will be-
(a) Horizontal line
(b) Vertical line
(c) Downward sloping to the right, flatter
(d) Downward sloping to the right, steeper
179. Rectangular hyperbola is also called-
(a) Equilateral Hyperbola
(b) Vertical Line
(c) Square
(d) Horizontal Line
180. The factor which generally keeps the price
elasticity of demand for a good low is-
(a) Variety of uses of that good
(b) Its low price
(c) Close – substitutes for that good
(d) High proportion of the consumer’s income
spent on it
181. If you spend more on rent than on soap, your
price elasticity of demand for housing is likely to
be-
(a) greater than your price elasticity of demand
for soap
(b) less than your price elasticity of demand for
soap
(c) equal to your price elasticity of demand for
soap
(d) none of the above
182. The demand for common salt has low price
elasticity because-
(a) it has no close substitute
(b) it is necessity
(c) it constitutes only a small proportion of
consumer’s expenditure
(d) all the above
183. The devaluation of currency would increase
the export earnings only when demand for the
nation’s exports in foreign market is-
(a) Elastic
(b) Inelastic
(c) Perfectly Inelastic
(d) Unitary Elastic
184. The demand for sugar and tea is usually:
(a) Elastic
(b) Inelastic
(c) Perfectly elastic
(d) Perfectly inelastic
185. Availability of close substitutes makes the
demand-
(a) Less elastic
(b) More elastic
(c) Perfectly elastic
(d) Perfectly inelastic
186. Elasticity is greater than unity for-
(a) necessaries
(b) luxuries
(c) complementary goods
(d) inferior goods
187. Complementary goods exhibit ________
elasticity of demand.
(a) low
(b) high
(c) unitary
(d) none of the above
188. All but one of the following commodities has
elastic demand. Which one has inelastic
demand?
(a) Coca-Cola
(b) Butter for poor person
(c) Cigarettes
(d) Electricity
189. Demand is ________ in the long period than in
the short period.
(a) less elastic
(b) perfectly elastic
(c) perfectly inelastic
(d) more elastic
190. The demand for necessities is ________
(a) Highly elastic
(b) Highly inelastic
(c) Slightly elastic
(d) Slightly inelastic

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191. If the demand for a commodity is ________,
the entire burden of indirect tax will fall on the
consumer.
(a) Relatively inelastic
(b) Perfectly inelastic
(c) Relatively elastic
(d) Perfectly elastic
192. Which of the following helps the manager to
estimate the demand of a commodity?
(a) Price of the commodity
(b) Price of the substitute commodities
(c) Elasticity of the commodity
(d) All the above
193. The price elasticity of demand for a face
cream is estimated to be ONE, no matter what
the price or quantity demanded. In this case-
(a) a 1096 increase in price will result in 1096
increase in quantity demanded
(b) a 1096 increase in price will result in 1096 fall in
quantity demanded
(c) an increase in price will increase the seller’s
revenue
(d) none of the above
194. If demand is ________ then price cuts will
________ spending.
(a) perfectly inelastic ; increase
(b) elastic; increase
(c) elastic; decrease
(d) none of the above
195. Suppose the demand for Dosa at Dosa Plaza
is elastic. If the owner of the restaurant is
consid¬ering raising the price, it can expect
relatively-
(a) large fall in quantity demanded
(b) large fall in demand
(c) small fall in quantity demanded
(d) small fall in demand
196. If a 1096 rise in the price of a commodity
causes the demand to fall by 2096
(a) demand was inelastic
(b) demand was infinitely elastic
(c) demand was elastic
(d) none of the above
197. On typical straight line demand curve, the
elasticity of demand at a point where it meets the
price axis is-
(a) 2
(b) 0.75
(c) 1
(d) infinite
198. On a straight line demand curve the elasticity
of demand at the mid-point of the curve is-
(a) 1/2
(b) 2
(c) 0
(d) 1
199. To measure price elasticity over large
changes in price we use ________
(a) point elasticity method
(b) arc elasticity method
(c) income elasticity method
(d) none of the above
200. If the demand for a good is elastic, an
increase in its price will cause the total
expenditure of the consumers of the good to
(a) Remain the same
(b) Increase
(c) Decrease
(d) None of these


PRACTICE PAPER : 5
201. When the price of Good ‘X’ goes up by 1096
its demand falls from 800 units to 600 units. What is
the price elasticity of Good ‘X?
(a) – 2.5 with flatter demand curve
(b) 2.5 with flatter demand curve
(c) – 1.5 with steeper demand curve
(d) 1.5 with steeper demand curve
202. The demand by a consumer for a commodity
falls by 1096 when its price increases from Rs. 5 to
Rs. 6 per unit. What is the price elasticity of
demand?
(a) unitary elastic
(b) 0.5
(c) .8
(d) 1.5
203. 30 units of a commodity is purchased by a
consumer at the price of Rs. 46 per unit. When the
price rises to Rs. 50 per unit, he buy 15 units only.
The co-efficient of elasticity do demand is –
(a) 4.75
(b) 5
(c) 5.75
(d) 6
204. A consumer spends Rs. 40 on a good at a
price of Rs. 1 per unit and Rs. 60 at a price of Rs. 2
per unit. The elasticity of demand is-
(a) 0.25
(b) 2.5
(c) .35
(d) 3.5
205. A consumer buy 20 units of a good at ? Rs. 10
p.u. The price elasticity of demand of this good is -
1. How much quantity would be demanded by

34. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 34

the consumer when the PRICE FALLS to Rs.8 p.u.?
(a) 21 units
(b) 22 units
(c) 23 units
(d) 24 units
206. A consumer buy 40 units of a commodity at
Rs. 5 per unit. Its Ed = -3. How much demand of
quantity he will buy at Rs. 6 per unit?
(a) 15 units
(b) 16 units
(c) 17 units
(d) 18 units
207. The market demand of a commodity at Rs. 4
per unit is 100 units. The price RISES and as a result
its market demand falls to 75 units. If Ed = -1, find
out its new price.
(a) Rs. 5
(b) Rs. 6
(c) Rs. 7
(d) Rs. 8
208. A consumer buy 80 units of a commodity at
Rs. 4 per unit. When the price FALLS, he buy 100
units. If Ed = -1, the new price will be-
(a) Rs. 3.5
(b) Rs. 3
(c) Rs. 2.5
(d) Rs. 2
209. Demand for good ‘X’ is perfectly inelastic.
What will be the change in demand if price falls
from Rs. 10 per unit to Rs. 5 per unit?
(a) No change in demand
(b) Large change in demand
(c) Medium change in demand
(d) None of the above
210. What happens to total expenditure on a
commodity when its price falls and its demand is
price elastic?
(a) Total expenditure will remain constant
(b) Total expenditure will fall
(c) Total expenditure will increase
(d) None of the above
211. As the price of a product falls by 7%, the total
expenditure on it has gone up by 3.5%. The
elasticity of demand of this product is-
(a) Ed = 0
(b) Ed > l
(c) Ed < 1
(d) Ed = 1
212. Let Qx = 1400/p Find, total expenditure on
good ‘X’ when Px falls from Rs. 6 to Rs. 1 ; derive
the value of Ed and what shape the demand
curve will take?
(a) Rs. 1400 ; Ed = 1 and rectangular hyperbola
(b) Rs. 1400 ; Ed < 1 and steep demand curve
(c) Rs. 1400 ; Ed > 1 and flatter demand curve
(d) Rs. 2800 ; Ed = 1 and rectangular hyperbola
213. The demand of a commodity was 100 units
initially. With the rise in price by Rs. 5, the quantity
demanded falls by 5 units. Elasticity of demand is
1.2. Find out the price BEFORE the change in
demand.
(a) Rs. 100
(b) Rs. 140
(c) Rs. 120
(d) Rs. 160
214. Regardless of changes in its price, if the
quantity demanded of a good remains constant,
then the demand curve for the good will be-
(a) horizontal
(b) vertical
(c) positively sloped
(d) negatively sloped
215. The total revenue of the seller will increase
with a fall in price if-
(a) demand is unitary
(b) the percentage change in quantity
demand¬ed is less than percentage in price
(c) demand is inelastic
(d) the percentage in quantity demanded is
greater than the percentage change in price
216. Point elasticity is useful for which of the
following situations?
(a) A restaurant is considering increasing the price
of dosa from Rs. 100 to Rs. 200
(b) Lakme is considering lowering the price of its
lipsticks by 50%
(c) Maruti Car Ltd. lower the price of Alto 800 by
Rs. 1,000
(d) None of the above
217. If there are finite change in price and
quantity demanded over a stretch on the
demand curve, it is called-
(a) Arc elasticity
(b) Point elasticity
(c) Average elasticity
(d) Both ‘a’ and ‘c’
218. The formula used in the Arc Elasticity method
is-

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219. When price elasticity at a single point on a
demand curve is measured, we use ____
(a) Proportionate Method
(b) Geometric Method
(c) Total Expenditure Method
(d) Arc Elasticity
220. The exact and precise co-efficient of
elasticity cannot be found by _____ method.
(a) Proportionate Method
(b) Geometric Method
(c) Total Expenditure Method
(d) Arc Elasticity
221. ____ method only classifies elasticity into
elastic, inelastic or unitary elastic.
(a) Proportionate Method
(b) Geometric Method
(c) Total Expenditure Method
(d) Arc Elasticity
222. Slope of a demand curve may remain
constant but elasticity still can does change. This
is-
(a) Absolutely correct as slope of a curve and its
elasticity are not the same thing
(b) Absolutely incorrect as slope of a curve and its
elasticity are same thing
(c) Partly correct and partly incorrect
(d) None of the above
223. Let slope of demand curve = -0.5. The
elasticity of demand will be ____ if initial price is Rs.
20 per unit and initial quantity is 50 units of the
commodity
(a) – 0.6
(b) – 0.7
(c) – 0.8
(d) – 0.9

For Q. Nos. 224 to 226 refer the following
information. Given –
2
24. What is the price of the commodity when
Quantity Demanded is 20 units ?
(a) Rs. 4
(b) Rs. 5
(c) Rs. 6
(d) Rs. 7
225. What is the price of the commodity when the
Quantity Demanded is 30 units?
(a) Rs. 4
(b) Rs. 5
(c) Rs. 6
(d) Rs. 7
226. Using percentage method, the price
elasticity of demand is-
(a) 1.5
(b) 2.0
(c) 2.5
(d) 3.0
227. Life saving drugs has ____ demand.
(a) inelastic
(b) elastic
(c) perfectly elastic
(d) perfectly inelastic
228. The price elasticity of demand is 0.5. The
percentage change in quantity is 4. What is the
percentage in price?
(a) 6
(b) 8
(c) 10
(d) 12
229. When price of a commodity gets doubled, its
quantity demanded is reduced to half. The
coefficient of price elasticity of demand will be-
(a) – 1
(b) – 0.5
(c) – 1.5
(d) – 2
230. Calculate the price elasticity of demand-
Price Total Expenditure ( Rs.)
50 5000
60 6000
(a) – 1
(b) – 2
(c) – 2.5
(d) – 1.5

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231. The price elasticity of demand for good ‘X’ is
twice that of good ‘Y’. Price of ‘X’ falls by 5%
while that of good ‘Y’ rises by 5%. The percentage
change in the quantities demanded of X and Y
will be
(a) 10% and 5%
(b) 5% and 10%
(c) 10% and 15%
(d) 15% and 20%
232. A consumer buys a certain quantity of a
good at a price of Rs. 10 per unit. When the price
falls to Rs. 8 per unit, he buys 40% more quantity.
The price elasticity of demand will be-
(a) 8
(b) 6
(c) 4
(d) 2
Consider the following diagram to answer
questions from 233 to 234

233. At a price of OP the total expenditure of the
consumer is-
(a) OC RP1
(b) OBTP
(c) BCRT
(d) None of the above
234. At a price of OP1 the total expenditure of the
consumer is-
(d) OC RP1
(b) OBTP
(c) BCRT
(d) None of the above
235. All demand curves but one indicate same
elasticity of demand at all their points-
(a) Horizontal Straight Line Demand Curve
(b) Vertical Straight Line Demand Curve
(c) Relatively Elastic Demand Curve
(d) Rectangular Hyperbola
236. The point where the downward sloping
straight line demand curve intercept the
horizontal axis, price elasticity of demand is ____
because price at the point is ____
(a) zero ; zero
(b) = 1; zero
(c) > 1 ; zero
(d) < 1 ; zero
237. If the price elasticity of demand is ZERO, it
means expenditure on the commodity may ____
with the change in price of the commodity.
(a) increase
(b) decrease
(c) increase or decrease
(d) remain constant
238. The price elasticity of demand is higher, when
the price of the commodity is-
(a) higher
(b) lower
(c) constant
(d) zero
239. If 10% increase in price of good ‘X’ causes a
10% increase in expenditure on good ‘X’, elasticity
of demand is equal to ____
(a) 2
(b) 3
(c) 1
(d) zero
240. Price of the commodity increases from Rs. 10
to Rs. 12 per unit and expenditure on the
commodity increases by 20%, elasticity of
demand would be-
(a) 3
(b) zero
(c) 2
(d) 1
241. The income elasticity of demand in case of
an inferior good is-
(a) positive
(b) zero
(c) negative
(d) infinite
242. If a good is a luxury, its income elasticity of
demand is-
(a) positive & less than one
(b) negative but greater than one
(c) positive and greater than one
(d) zero
243. When a given change in income does not
lead to any change in the quantity demanded, it
is called as-
(a) negative income elasticity of demand
(b) income elasticity of demand less than one
(c) zero income elasticity of demand
(d) income elasticity of demand is greater than
one
244. The goods having zero income elasticity of
demand are called goods.
(a) luxury
(b) comfort
(c) necessity
(d) neutral

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245. Salt, Match Box, etc. are ____ goods as Σy = 0
(a) neutral
(b) necessary
(c) luxury
(d) none of the above
246. As income rises, the consumer will go in for
superior goods and as a result the demand for
inferior goods will fall. This implies-
(a) income elasticity of demand less than one
(b) negative income elasticity of demand
(c) zero income elasticity of demand
(d) unitary income elasticity of demand
247. Firms that supply products with higher income
elasticity of demand can expect ____ as the
economy grows.
(a) rise in sales
(b) fall in sales
(c) constant sales
(d) first rise then
248. Firms that supply products with relatively low
income elasticity of demand experience in an
economic downturn.
(a) rise in sales
(b) fall in sales
(c) stable sales
(d) none of the above
249. Which one of the following is income inelastic
product/service?
(a) Air travel
(b) Visit to water park
(c) Life Saving Drugs
(d) Dinner at a five star hotel
250. The responsiveness of demand of a
commodity to the change in income is known as-
(a) price elasticity of
(b) income elasticity demand of demand
(c) cross-elasticity
(d) none of the above of demand

PRACTICE PAPER : 6
251. The responsiveness of the change in quantity
demanded of one commodity du e to a change
in the price of another commodity is known as-
(a) price elasticity of demand
(b) income elasticity of demand
(c) cross elasticity of demand
(d) none of the above
252. Cross elasticity of demand between two
perfect substitutes will be-
(a) low
(b) very high
(c) infinity
(d) very low
253. Complementary goods like tea and sugar
have a ____ cross elasticity of demand.
(a) Negative
(b) Positive
(c) Zero
(d) Infinite
Consider the following information to answer Q.
Nos. 254 to 256.
The following elasticities relating to demand for
CORN are given-
 Price Elasticity EP = 1.50
 Cross Elasticity between the demand for
CORN and price of WHEAT = 0.75
 Income Elasticity, Ey = 0.50
254. If the price of corn rises, other things being
the same, the consumers will spend ____ on corn.
(a) more
(b) less
(c) same amount
(d) none of the above
255. The above information shows that wheat and
corn are ____
(a) neutral goods
(b) necessity
(c) complementary goods
(d) substitute goods
256. If income rises, the share of income spent on
corn will-
(a) remain same
(b) increase
(c) fall
(d) none of the above
257. Given – Qx = 500 – 4 Px
Find elasticity demand when price = Rs. 25
(a) .50
(b) .25
(c) 1
(d) .75
258. Give – Qx = 20 – 2 Px, what is the price
elasticity of demand when price is Rs. 5?
(a) 0.50
(b) .25
(c) 1
(d) .75
259. If the amounts of two goods purchased
increase or decrease simultaneously when the
price of one changes, then the cross elasticity of
demand between then is-
(a) one

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(b) negative
(c) positive
(d) zero
260. Of the following commodities, which has the
lowest elasticity of demand?
(a) Car
(b) Tea
(c) Houses
(d) Salt
261. Suppose your income increases by 20% and
demand for a commodity increases by 10%, then
the income elasticity of demand is-
(a) infinity
(b) negative
(c) zero
(d) positive
262. Which of the following does not have uniform
elasticity of demand at all points?
(a) A downward sloping demand curve
(b) A vertical demand curve
(c) A rectangular hyperbola demand curve
(d) A horizontal demand curve
263. A negative income elasticity of demand for a
commodity indicates that as income falls the
amount of commodity purchased-
(a) remains unchanged
(b) falls
(c) rises
(d) none of these
264. In which case the elasticity shown by
different points of a curve is the same?
(a) A rectangular hyperbola curve
(b) A straight line curve
(c) A downward sloping curve
(d) None of these
265. “The proportional change in quantity
purchased divided by the proportional change in
price”. The quotation is given by-
(a) Alfred Marshall
(b) Cobb – Douglas
(c) Joan Robionson
(d) Adam Smith
266. If the quantity demanded of a commodity is
plotted against the price of a substitute goods,
the curve is expected to be-
(a) Vertical
(b) Positively sloped
(c) Horizontal
(d) Negatively sloped
267. Cross elasticity of demand between petrol
and automobiles is-
(a) infinite
(b) high
(c) zero
(d) low
268. There are two goods ‘X’ and ‘Y’. The cross
elas¬ticity of demand for ‘X’ with respect to price
of ‘Y’ is greater than zero, they are-
(a) complementary to each other
(b) complementary goods
(c) substitutes
(d) close substitutes
269. If two demand curves are shooting
downward from the same point, then-
(a) flatter curve have greater elasticity of
demand
(b) steeper curve have greater elasticity of
demand
(c) both curves show same elasticity of demand
since they shoot down from the same point
(d) none of the above
270. If income elasticity for the household for
good A is 2, then the good is-
(a) necessity item
(b) inferior good
(c) luxury item
(d) neutral good

Consider the following figure to answer Q. Nos.
271 to 273

271. In the figure above elasticity of demand at
point ‘D’ is-
(a) < elasticity of demand at point ‘C’
(b) > elasticity of demand at point ‘C’
(c) = elasticity of demand at point ‘C’
(d) None of the above
272. Price at point ‘B’ price is ____ and therefore
elasticity of demand is ____
(a) high ; high
(b) low; low
(c) zero ; zero
(d) zero ; high/low
273. The elasticity of demand at point ‘A’ is-
(a) low
(b) infinite
(c) high
(d) zero

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Consider the following figure to answer Q. Nos.
274 to 276

274. In the figure above, for a given fall in price to
P1 the change in quantity is highest in case of-
(a) d1
(b) d2
(c) d3
(d) None of the above as all curves shoot from
same point
275. Demand curve d2 is-
(a) more elastic than d1
(b) less elastic than d1
(c) more elastic than d2
(d) none of the above
276. Of the three demand curves highest elasticity
is denoted by-
(a) d1
(b) d2
(c) d3
(d) all show same elasticity
277. If the quantity demanded of a commodity is
plotted against the price of a complementary
good, the demand curve will be-
(a) Negatively sloped
(b) Positively sloped
(c) Vertical
(d) Horizontal
278. Income of a household rises by 10% and its
demand for jawar falls by 4%. In this case jawar is
____ good.
(a) Normal
(b) Luxurious
(c) Inferior
(d) Neutral
279. If Cross Elasticity of Demand is equal to Zero,
it means that the goods are-
(a) Perfect Substitute goods
(b) Complementary goods
(c) Unrelated goods
(d) Substitutes
280. If the quantity demanded of Tea rises by 5%
when the price of Coffee increase by 20%, the
Cross Elasticity of demand between Tea and
Coffee is-
(a) – 0.25
(b) 0.25
(c) – 4
(d) 4
281. Want satisfying power of a commodity is
called-
(a) consumption
(b) utility
(c) production
(d) value addition
282. Utility depends on the ____ of a want.
(a) intensity
(b) quality
(c) novelty
(d) uniformity
283. All but one are the commodities that have
both utility and usefulness except-
(a) pencil
(b) notebook
(c) tobacco
(d) clothes
284. Utility is-
(a) a subjective and relative concept
(b) morally or ethically colourless
(c) different from pleasure
(d) all the above
285. Utility may be defined as-
(a) power of a commodity to satisfy wants
(b) usefulness of a commodity
(c) desire for a commodity
(d) none of the above
286. The utility of a commodity is ____
(a) its accepted social value
(b) the extent to which it is of practical use
(c) the fact that it is wanted by some people
(d) its relative scarcity
287. Utility is measured in terms of-
(a) Grams
(b) Seconds
(c) Centimeter
(d) Utils
288. Utility is-
(a) usefulness
(b) moral implications
(c) legal implications
(d) none of the above
289. The cardinal approach postulates that utility
can be ____
(a) compared
(b) measured

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(c) ranked
(d) all the above
290. Cardinal Utility Theory is associated with-
(a) W.S. Jevons
(b) Dr. A. Marshall
(c) H.H. Gossen and Walras
(d) All the above
291. Cardinal Utility approach is also known as-
(a) Indifference Curve Analysis
(b) Hicks and Allen Approach
(c) Marginal Utility Analysis
(d) All the above
292. Marginal Utility Approach is also called-
(a) Ordinal Utility Analysis
(b) Hicks and Allen Approach
(c) Cardinal Utility Analysis
(d) All the above
293. According to marginal utility analysis, utility
can be measured as-
(a) 1st, 2nd, 3rd ……
(b) 1,2,3, ……
(c) Nominal numbers
(d) All the above
294. Cardinal measure of utility is required in-
(a) Marginal Utility Theory
(b) Indifference Curve Theory
(c) Revealed Preference Theory
(d) None of the above
295. Which of the following approaches uses
MONEY as a measuring rod of utility-
(a) Ordinal
(b) Cardinal
(c) Both ‘a’ and ‘b’
(d) Neither ‘a’ nor ‘b’
296. Which of the theories is applicable under
Cardinal Approach to Utility?
(a) Law of Diminishing Marginal Utility
(b) Law of Equi-Marginal Utility
(c) Consumer Surplus Theory
(d) All the above
297. All but one are the assumptions of the
Cardinal Utility Theory. Which one is not the
assumption?
(a) Rational Consumer
(b) Constant Marginal Utility of money
(c) Perfectly Competitive Market
(d) Independent Utilities
298. Which of the following assumptions ignores
the presence of complementary and substitute
goods in Cardinal Utility Theory?
(a) Rational Consumer
(b) Constant Marginal Utility of money
(c) Independent Utilities
(d) None of the above
299. The price that a consumer is ready to pay for
a commodity represents the utility he is expecting
from the commodity means-
(a) Utility is measurable
(b) Utility is not measurable
(c) Money is the measuring rod of utility
(d) Both ‘a’ and ‘c’
300. Consumer makes all calculations carefully
and then purchase the commodities in order to
maximize his utility means consumer is-
(a) careless
(b) rational
(c) irrational
(d) unpredictable

PRACTICE PAPER : 7
301. Which of the following statements regarding
ordinal utility is true?
(a) Utility can be measured, but cannot be
ranked in order of preferences
(b) Utility can be measured only
(c) Utility can neither be measured nor be ranked
in order or preferences
(d) Utility cannot be measured, but can be
ranked in order of preferences
302. The cardinal approach to utility assumes
marginal utility of money is-
(a) Zero
(b) Constant
(c) Increasing Trend
(d) Decreasing Trend
303. ____ is the sum total of the utility derived from
additional units of a commodity
(a) Average utility
(b) Marginal utility
(c) Total utility
(d) Ordinal utility
304. _____ is the addition made to the total utility
by the consumption of additional unit of a
commodity
(a) Marginal Utility
(b) Total Utility
(c) Average Utility
(d) Ordinal Utility
305. Marginal Utility can be stated by-
(a)
(b) Additional utility derived from additional unit
of a commodity

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(c) TUn – TUn-1
(d) All the above
306. Utility of a good can be termed as the ____
(a) Monetary value a consumer gains from
consuming a particular good
(b) The difference between what a consumer is
willing to pay and actually pays
(c) The satisfaction a consumer derives from the
consumption of a particular good
(d) The desire to consume a good
307. Marginal Utility-
(a) is always positive
(b) is always negative
(c) can be positive or negative but not zero
(d) can be positive or negative or zero
308. Total Utility can be calculated as-
(a) TU = Σ MU
(b) TU = MU1 + MU2 + MU3 + MUn
(c) Both ‘a’ and ‘b’
(d) none of the above
309. When only ONE unit of the commodity is
consumed-
(a) MU = TU
(b) MU > TU
(c) MU < TU
(d) none of these
310. When marginal utility is negative, total utility
is-
(a) zero
(b) diminishing
(c) maximum
(d) minimum
311. When total utility is maximum, marginal utility
becomes-
(a) zero
(b) unity
(c) positive
(d) negative
312. Total Utility is ____ when marginal utility is
positive
(a) maximum
(b) diminishing
(c) increasing
(d) minimum
313. When TU is increasing at a diminishing rate,
MU must be-
(a) increasing
(b) decreasing
(c) constant
(d) negative
314. MU of a particular commodity at the point of
saturation is-
(a) zero
(b) unity
(c) greater than unity
(d) less than unity
315. Which of the following equation is incorrect?

316. The rate of which TU changes is indicated by-
(a) MU
(b) TU
(c) both ‘a’ and ‘b’
(d) none of these
317. With the increase in consumption by ONE unit
of the commodity, TU increases from 120 to 150,
then marginal utility is-
(a) 50
(b) 1.25
(c) 0.88
(d) 30
318. The shape of MU curve is-
(a) upward sloping
(b) Concave to origin
(c) downward sloping
(d) straight line
319. TU starts diminishing when-
(a) MU is positive
(b) MU is increasing
(c) MU is negative
(d) MU is constant
320. TU curve-
(a) always rises
(b) always falls
(c) first falls and then rises
(d) first rises at a diminishing rate, reaches
maximum point and then falls
321. MU curve will be below X-axis when-
(a) MU is positive
(b) MU is negative
(c) MU is zero
(d) MU is constant
322. What is called the point of satiety?
(a) The point where MU >0
(b) The point where MU < 0
(c) The point where MU = 0
(d) None of these

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323. ____ states that marginal utility of a good
diminishes as the consumer consumers additional
units of a good.
(a) The Law of Equi-Marginal Utility
(b) The Law of Diminishing Marginal Utility
(c) Revealed Preference theory
(d) None of the above
324. MU curve of a consumer is also his ____
(a) indifference curve
(b) total utility curve
(c) supply curve
(d) demand curve
325. ____ curve is the slope of the TU curve.
(a) MU Curve
(b) Average Utility Curve
(b) Supply Curve
(d) Indifference Curve
326. At saturation point the slope of total utility
curve is ____
(a) rising
(b) falling
(c) zero
(d) none of these
327. Constant Marginal Utility of Money means ___
(a) quantity
(b) importance
(c) composition
(d) Both ‘a’ and ‘c’
328. A curve which first move upwards then down
wards is naturally ____
(a) Marginal Utility Curve
(b) Average Utility Curve
(c) Total Utility Curve
(d) Demand Curve
329. The peradox of value means that-
(a) people are irrational in consumption choices
(b) the total utilities yielded by commodities do
not necessarily have relationship to their prices
(c) value has no relationship to utility schedule
(d) free goods are goods that are essential to life
330. The value paradox (diamond and water
paradox) arises because-
(a) Water has too low price
(b) Value in use differs from utility
(c) Diamonds are too high priced
(d) Value-in-use differs from value-in-exchange
331. In ONE COMMODITY, case, the consumer is
at equilibrium when-

332. The second samosa consumed gives lesser
satisfaction to Mohan. This is a case of-
(a) Law of Demand
(b) Law of Diminishing Returns
(c) Law of Diminishing Marginal Utility
(d) Law of Supply
333. Marginal Utility of a commodity depends on
its quantity and is –
(a) inversely proportional to its quantity
(b) not proportional to its quantity
(c) independent of its quantity
(d) none of the above
334. Which of the following is NOT an assumption
of Law of Diminishing Marginal Utility?
(a) Homogenity
(b) Continuity
(c) Standard Unit
(d) None of the above
335. MU of one commodity has no relation with
MU of another commodity implies-
(a) assumption of uniform quality
(b) assumption of rational consumer
(c) assumption of independent utilities
(d) assumption of reasonable quantity
336. Consumer in consumption of single
commodity ‘X’ will be at equilibrium when-
(a) MUx = Px
(b) Mux >Px
(c) Mux < Px
(d) all the above
337. if Mux >Px then consumer-
(a) is not at equilibrium
(b) he will buy more of X good
(c) he will buy less of X good
(d) both ‘a’ and ‘b’
338. Suppose the price of good X is given as Rs. 8
and the MU in terms of money for 4 units is given
as-
Units 1 2 3 4
MUx (Rs.) 12 10 8 6
How many units should a consumer purchase to
maximize satisfaction?
(a) 4 units

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(b) 3 units
(c) 2 units
(d) 1 unit
339. Following is the utility schedule of a person-
Units 1 2 3 4 5
MUx (Units.) 50 40 30 20 10
If the commodity is sold for Rs. 4 and MU of one
rupee is 5 utils, how many units will the consumer
buy to maximize satisfaction?
(a) 1 unit
(b) 2 units
(c) 3 units
(d) 4 units

340. Suppose that an ice-cream is sold for Rs. 30.
Ritu has already eaten 3 ice-creams. Her MU from
eating the 3rd ice-cream is 90 utils. MU of Rs. 1 is 3
utils. Should she eat more ice-creams or stop?
(a) Stop eating more ice-creams
(b) Continue eating more ice-creams
(c) Stop after eating one more ice-cream
(d) Eat 2 more ice-creams
341. If one burger give you satisfaction of 15 utils
and two burgers give total satisfaction of 25 utils,
then the marginal utility of second burger is-
(a) 10 utils
(b) 11 utils
(c) 12 utils
(d) 13 utils
342. ____ refers to a situation when a consumer
maximizes his satisfaction with his limited income.
(a) Producer’s Equilibrium
(b) General Equilibrium
(c) Consumer’s Equilibrium
(d) None of these
343. The general condition of consumer’s
equilibrium with respect to any particular product
is-
CA Foundation Business Economics Study Material
Chapter 2 Theory of Demand and Supply - MCQs
343
344. The consumer is in equilibrium and is
consuming good-X only. The MU from last unit of
good X consumed is 50 utils and Mum =10. What is
the price of good X?
(a) Rs. 5
(b) Rs. 40
(c) Rs. 10
(d) Rs. 4
345. The principal limitation of utility analysis
re¬lates to the basic assumption that utility can
be expressed in terms of-
(a) cardinal numbers
(b) ordinal numbers
(c) both ‘a’ and ‘b’
(d) none of these
346. Marginal Utility theory is based on ____ from a
good.
(a) actual satisfaction
(b) anticipated satisfaction
(c) realised satisfaction
(d) none of these
347. Which one of the following is the ODD one?
(a) Law of Substitution
(b) Law of Diminishing Marginal Utility
(c) Indifference curve analysis
(d) Law of Variable Proportions
348. Which statement is correct in connection
with utility?
1. It is same for all consumer
2. It is a subjective concept
3. It is different for all its consumers
4. It’s a want satisfying power
5. It decreases uniformly for all its consumers
(a) 1, 2 and 3 only
(b) 2, 3 and 4 only
(c) 3, 4 and 5 only
(d) 1, 3 and 5 only
349. The excess of the price which a person would
be willing to pay rather than go without the thing
over that he actually does pay is called-
(a) extra satisfaction
(b) surplus satisfaction
(c) consumer’s surplus
(d) all the above
350. The doctrine of consumer’s surplus is based
on ____
(a) Elasticity of Demand
(b) Indifference Curve Analysis
(c) Law of Substitution
(d) Law of Diminishing Marginal Utility

PRACTICE PAPER : 8
351. The term optimum allocation of consumer’s
expenditure on different goods and services is
used in-
(a) Law of Demand
(b) Giffens Paradox
(c) Law of Equi-Marginal Utility
(d) Law of Diminishing Marginal Utility

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352. Buyer’s surplus is highest in the case of _____
(a) Luxuries
(b) Comforts
(c) Necessaries
(d) All the above
For Q – Nos. 353 to 355, refer the following figure :

353. In the above figure, the total utility is
represented by the area ____
(a) DPR
(b) OQRP
(e) OQRD
(d) none of these
354. In the above figure, the given price is _____
and the consumer for OQ amount of commodity
spends a total amount of money equal to the
area _____
(a) OP ; POOR
(b) OD ; POOR
(c) OP ; DPR
(d) OD ; DPR
355. In the above figure, the consumer’s surplus is
shown by the area-
(a) POOR
(b) DPR
(c) OQRD
(d) none of these
For Q. Nos. 356 and 359 refer the following figure

356. In the above diagram, the consumer’s surplus
at the price of P1 is equal to the area-
(a) P1CA
(b) P1OQ1
(c) Both ‘a’ and ‘b’
(d) none of these
357. In the above diagram when price of the
commodity decreases from P1 to P2, the gain in
consumer’s surplus is equal to ____
(a) AP3C
(b) AP2D
(c) P1P2DC
(d) AP3B
358. In the above diagram, when price of the
commodity rises from P1 to P3, the loss in
consumer’s surplus is equal to ___
(a) AP3B
(b) AP1C
(c) AP2D
(d) P1P3 BC
359. The consumer’s surplus at the price P1 is ____
than the consumer’s surplus at the price of P3 but
____ at the price of P2.
(a) greater; less
(b) less ; greater
(c) same at all the prices
(d) none of these
360. The area of consumer’s surplus is correctly
shaded in ____



361. The concept of consumer’s surplus is useful in
____
(a) Distinguishing between value-in-use and
value-in-exchange
(b) Comparing the advantages of different
places
(c) Useful in cost benefit analysis of projects
(d) All the above
362. Amit divides his income entirely between
Good X and Good Y. He allocates his income
between these two goods is such a way that he
maximizes his satisfaction. His MU from extra unit of
Y is 4 Utils and the price of Y is Rs. 40. If the price of
X is Rs. 80, how much of X good he consumes per
day?
(a) 4
(b) 6

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(c) 8
(d) 10
363. A free good is plentiful so as to have no price,
will be used upto the point where its marginal
utility is ____
(a) zero
(b) highest
(c) lowest
(d) none of these
364. The more rapidly the marginal utility of
additional units of a good falls, the will be the
elasticity of demand.
(a) more
(b) less
(c) zero
(d) infinite
365. According to utility theory, for a consumer
who is maximizing total utility, MUa / MUb

366. In which of the following fields the concept of
consumer’s surplus is useful?
(a) Monetary policy
(b) Tax policy
(c) Investment policy
(d) Fixing remuneration on factors
367. An example of a commodity having
consumers surplus is ____
(a) Salt
(b) Branded Shirt
(c) Machinery
(d) Pen
368. Consumer’s surplus means-
(a) difference between market price and
individual price
(b) difference between actual and potential
price
(c) low price is prevailing
(d) happiness of the consumer
369. Consumer’s surplus is measured with the help
of ____
(a) market demand curve
(b) marginal productivity curve
(c) marginal utility curve
(d) none of these
Consider the following details to answer Q. Nos.
370 to 372
Given Px = Rs. 2 and Py = Rs. 1 and income = Rs.
12.
Also given is the utility schedule of good X & Y.

370. How many units of X and Y the consumer will
buy in order to maximize utility?
(a) 2 units of X & 6 units of Y
(b) 3 units of X & 5 units of Y
(c) 4 units of X & 4 units of Y
(d) 3 units of X & 6 units of Y
371. What will be the total utility received by the
Consumer from the two commoddities
(a) 90
(b) 92
(c) 93
(d) 95
372. How much of total income will the consumer
spend on good X and good Y?
(a) Rs. 3 & Rs. 6
(b) Rs. 6 & Rs. 6
(c) Rs. 6 & Rs. 3
(d) Rs. 3 & Rs. 3
373. When the price of both the commodities is
same, the consumer attains maximum satisfaction
where

374. A consumer will purchase more of Good-x
than Good-Y, only when :

375. A locus of constant utility is called the ____
(a) expansion path
(b) utility function
(c) indifference curve
(d) demand function
376. An indifference curve is ____
(a) downward sloping and convex to origin

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(b) downward sloping and concave to origin
(c) upward sloping and convex to origin
(d) vertical and parallel to y-axis
377. The slope of indifference curve show-
(a) marginal rate of substitution
(b) level of satisfaction to the consumer
(c) elasticity of indifference curve
(d) none of the above
378. At a point near the right hand below corner
of a indifference curve, the MRS of commodity ‘X’
for commodity ‘Y’ is-
(a) very high
(b) very low
(c) zero
(d) neither high nor low
379. As one moves upward towards left along an
indifference curve, the MRS of commodity ‘X’ for
commodity ‘Y’-
(a) increases
(b) decreases
(c) is constant
(d) fluctuates
380. A higher IC denotes-
(a) a higher level of satisfaction
(b) a lower level of satisfaction
(c) same level of satisfaction
(d) none of the above
381. Which of the following is not a characteristics
of the indifference curve-
(a) downward sloping to the right
(b) convex to the origin
(c) intersecting at one point
(d) none of the above
382. IC theory assumes that-
(a) buyers can measure satisfaction
(b) buyers can identify preferred combinations of
goods
(c) the prices of the goods are equal
(d) none of the above
383. An IC shows all combinations of two
commodities which-
(a) give the same level of satisfaction to the
consumer
(b) represent the highest level of satisfaction to
the consumer
(c) give the different level of satisfaction to the
consumer
(d) none of the above
384. The slope of IC tends to diminish as we move
down the curve means-
(a) MRS is constant
(b) MRS is increasing
(c) MRS is decreasing
(d) none of the above
385. Marginal rate of substitution of ‘X’ for ‘Y’ is
calculated as-

386. In an indifference map, higher IC indicates :
(a) lower level of satisfaction
(b) same level of satisfaction
(c) higher level of satisfaction
(d) either same or higher level of satisfaction
387. MRS is determined by-
(a) satisfaction level of the consumer
(b) income of the consumer
(c) tastes of the consumer
(d) preferences of the consumer
388. A set of ICs drawn in a graph is called-
(a) indifference curve
(b) indifference map
(c) budget line
(d) budget set
389. An IC is convex to origin because of-
(a) diminishing marginal utility
(b) diminishing marginal productivity
(c) diminishing marginal cost
(d) diminishing marginal rate of substitution
390. Marginal Rate of Substitution indicates the
slope of-
(a) budget line
(b) indifference curve
(c) total utility curve
(d) demand curve
391. The slope of IC is different at different points
of the curve
(a) Correct
(b) Incorrect
(c) ∴ slope of IC is measured by MRS which falls
(d) Both ‘a’ & ‘c’
392. Only one IC will pass through a given point
on an indifference map implies that-
(a) One combination can lie only on one IC
(b) One combination can lie on two ICs.
(c) One combination can lie on as many ICs.
(d) none of the above
393. Considering the map, the satisfaction derived
from the combination is _____

47. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 47

(
а) A > B, B > C but A > C
(b) A>B>C
(c) A < B > C
(d) C > B > A
394. A consumer may not be in equilibrium at
point C or D because _____
(
a) MRSxy = Px / Py
(b) The whole income is not spent
(c) Point E gives higher level of Satisfaction with
the same expenditure as on point C and D
(d) Of sufficiency of income
395. On an indifference curve, the MRS falls when-
(a) moving upwards
(b) moving downwards
(c) at the middle
(d) none of these
396. Should a consumer move upward along an
IC, his total utility-
(a) First increases and then decreases
(b) First decreases and then increases
(c) Remains constant
(d) Increases
397. Which of the following is not an assumption of
ordinal utility analysis?
(a) Consumers are consistent in their preference
(b) Consumers can measure the total utility
(c) Consumers are non-satiated with respect of
two goods
(d) None of the above
398. All points on the same IC represent-
(a) Equal satisfaction
(b) Higher satisfaction
(c) Lower satisfaction
(d) All the above
399. IC approach deals with-
(a) One commodity only
(b) Two commodities
(c) Many commodities
(d) No commodities at all
400. If two goods were perfect substitutes of each
other, the IC will be-
(a) Curvilinear
(b) linear
(c) right angled
(d) convex to origin

PRACTICE PAPER : 9
401. A downward sloping linear IC indicates that
the rate of MRSxy is-
(a) diminishing
(b) increasing
(c) constant
(d) zero
402. In the case of two perfect substitute goods,
the IC will be-
(a) L – shaped
(b) U – shaped
(c) S – shaped
(d) Straight line
403. If a consumer has monotonic preferences,
which bundle will he choose?
(a) (10,8)
(b) (8,6)
(c) (10,7)
(d) (8,8)
404. If a consumer has monotonic preferences
how would he rank his preference over the
bundles (10,9); (9,9) (10,10)-
(a) (10,9) (10,10) ; (9,9)
(b) (10,10) (10,9) ; (9,9)
(c) (9,9) (10,10) ; (10,9)
(d) None of the above
405. When an IC is L shaped, then two goods will
be-
(a) Perfect Substitute Goods
(b) Perfect Substitute
(c) Perfect Complementary Goods
(d) Complementary Goods
406. The Other name associated with ordinal
approach apart from R.G.D. Allen and J.R. Hicks
is-
(a) Edgeworth
(b) Vilfredo Pareto
(c) Slutsky
(d) All the above
407. _____ depicts complete scale of consumer’s
tastes and preferences.
(a) Budget Line
(b) MU curve
(c) Indifference curve map
(d) One indifference curve

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408. One combination can lie only on one IC
means-
(a) Only one IC will pass through the point
(b) Two ICs will pass through the point
(c) As many ICs can pass through the point
(d) None of the above
409. When the quantity of one good is increased
in the combination, the quantity of other is
reduced to maintain same level of satisfaction.
This means that IC is ____
(a) positively sloped
(b) vertical straight line
(c) horizontal straight line
(d) negatively sloped
410. When the combinations on a IC do not
represent same level of satisfaction, it means IC is
_____
(a) positively sloped
(b) horizontal straight line
(c) vertical straight line
(d) all the above
411. is a graphical representation of all possible
combination of two goods which can be
purchased given income and prices.
(a) Budget Line
(b) Price Opportunity Line
(c) Consumption Possibility Line
(d) All the above
412. If a combination is below the Budget Line, it
indicates that there is-
(a) Underspending by a consumer
(b) Overspending by a consumer
(c) Full spending by a consumer
(d) None of the above
413. All combinations that lie on the budget line
are _____
(a) unaffordable by consumer
(b) affordable by consumer
(c) attainable by consumer
(d) Both ‘b’ and ‘c’
414. Each point on the budget line shows-
(a) the ratio of change in MU
(b) the ratio of prices of two goods
(c) Marginal Rate of Substitution .
(d) Both ‘b’ and ‘c’
415. A shift of the budget line, when prices are
constant, is due to-
(a) change in demand
(b) change in income
(c) change in preference
(d) change in utility
416. Slope of budget line is indicated by-

417. The budget line of a consumer in the analysis
of IC is-
(a) Vertical straight line
(b) Horizontal straight line
(c) Straight line sloping down towards right
(d) Straight line sloping upwards towards right
418. The budget line is not known as-
(a) consumption possibility curve
(b) price line
(c) price opportunity line
(d) isoutility line
419. Refer the following figure-

Figure denotes-
(a) Change in income
(b) Change in price of Good-X
(c) Change in price of Good-Y
(d) Change in the prices of both Good X & Y
420. When the prices of both Good-X and Good-Y
change by same percentage, a rise in price will-
(a) shift the budget line upwards
(b) shift the budget line downwards
(c) no shift in budget line
(d) all the above
421. If the budget line does not shift it means-
(a) prices of both goods X & Y has changed by
same percentage
(b) there is no change in the prices of both goods
X & Y
(c) money income of consumer has changed
(d) income of the consumer and prices of both
goods X & Y change by same percentage
422. If price of Goods-X falls and price of Good-Y
rises then budget line will-
(a) shift upward
(b) shift downward
(c) rotate
(d) remain same

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423. Refer the following figure, what change
budget line shows –

(a) Px fails and Py rises
(b) Px rise and Pv falls
(c) Px=Py
(d) none of the above

Refer the following to answer question nos. 424 to
426
A consumer wants to buy two good X and Y. The
prices of the two goods are Rs. 4 and Rs. 5
respectively. The consumers income is Rs. 20.
424. If the consumer spends the entire money
income to buy only Good-X, how much quantity
he can buy of it?
(a) 5 units
(b) 6 units
(c) 4 units
(d) 3 units
425. If the consumer spends the full income only
to buy Good-Y, how much quantity he would be
able to buy of it-
(a) 5 units
(b) 6 units
(c) 4 units
(d) 3 units
426. The slope of the budget line is-
(a) 0.9
(b) 0.8
(c) 0.7
(d) 0.5
427. A consumer can buy 6 units Good-X and 8
units of Good-Y if he spends his entire income. The
prices of the two goods are Rs. 6 and Rs. 8
respectively. What is the consumer’s income.
(a) Rs. 100
(b) Rs. 150
(c) Rs. 200
(d) Rs. 250
428. Ravi consumes Apples and Bananas whose
price are Rs. 6 and Rs. 3 p.u. respectively. If he is in
the state of equilibrium, the value of marginal rate
of substitution is-
(a) 4
(b) 3
(c) 2
(d) 1
429. A budget constraint line is a result of
(a) market price of good X
(b) market price of good Y
(c) income of the consumer
(d) all the above
430. The budget line equation is-

431. The consumer will maximize his satisfaction
and will be at equilibrium where-
(a) budget line is tangent to IC
(b) price line crosses on IC
(c) price line does not touch the IC
(d) none of the above
432. How many indifference curves can touch the
price line-
(a) Two
(b) One
(c) As many as possible
(d) No IC will touch
433. MRSxy = px / py where-
(a) consumer is in equilibrium
(b) consumer is not at equilibrium
(c) producer is at equilibrium
(d) none of the above
434. The point where the budget line is tangent to
an IC-
(a) equal amounts of goods give equal
satisfaction
(b) the ratio of prices of the two goods equals
MRS
(c) the prices of the goods are equal
(d) none of the above
435. Maximisation of total utility is an assumption
of a consumer in an analysis that is-
(a) Indifference curve approach
(b) Demand analysis
(c) Utility analysis
(d) All the above
436. A consumer is in equilibrium at the point of
tangency of his IC and the price line, because-
(a) He cannot go below
(b) He cannot go beyond
(c) He cannot go along
(d) None of the above

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437. Which of the following conditions is necessary
for utility to be maximum?

Consider the following figure and answer question
Nos. 438 and 439

438. The consumer is not at equilibrium at point C,
since-
(a) MRSxy > Px / Py
(b) MRSxy = Px / Py
(c) MRSxy < Px / Py (d) None of the above
439. The consumer is at equilibrium at point E,
since-
(a) MRSxy > Px / Py
(b) MRSxy = Px / Py
(c) MRSxy < Px / Py
(d) MUx = MUy
440. In a situation where MRSxy > px / py , the
consumer would react by-
(a) reducing the consumption of Good – X
(b) increasing the consumption of Good – Y
(c) increasing the consumption of Good – X
(d) none of these
441. When MRSxy < px / py , in order to reach
equilibrium, the consumption of-
(a) Good-Y should increase
(b) Good-X should increase
(c) Good-Y should decrease
(d) None of these
442. The situation of a consumer is better when-
(a) MRSxy >Px / Py
(b) MRSxy < Px / Py
(c) MRSxy = Px / Py
(d) none of these
Read the following to answer question Nos. 443
and 444
A consumer wants to buy two goods X and Y. He
has Rs. 24 to spend. The prices of two goods X
and Y are Rs. 4 and Rs. 2 respectively.
443. Which of the following bundles a consumer
would be able to buy-
(a) 4X and 5Y
(b) 2X and 7Y
(c) 3Xand6Y
(d) None of the above
444. What will be the MRSxy when the consumer is
at equilibrium-
(a) 1:2
(b) 2:1
(c) 1:1
(d) 2:2
445. At the point of equilibrium on Indifference
Curve-
(a) Slope of budget line = slope of IC
(b) Slope of budget line > slope of IC
(c) Slope of budget line < slope of IC
(d) None of the above
446. In case of IC approach, an income effect
means-
(a) a movement towards X-axis
(b) a movement towards the right
(c) a movement towards another indifference
curve
(d) a movement along the indifference curve
447. In the case of substitution effect in IC
approach, the consumer moves-
(a) along the same IC from left to right
(b) up and down along the same IC
(c) from a point on IC to a point on budget line
(d) none of these
448. IC is downward sloping from left to right since
more X and less Y gives-
(a) less satisfaction
(b) more satisfaction
(c) equal satisfaction
(d) maximum satisfaction
449. In economics, supply means-
(a) quantity of a commodity which is actually
offered for sale at a given price in a given period
of time
(b) quantity of a commodity which is offered for
sale at a particular price
(c) stock of commodity which is sold at a give
price
(d) none of the above
450. Which of the following is not true in case of
supply?
(a) Supply is a flow concept
(b) Supply is a stock concept
(c) Supply is directly related to price
(d) Market supply is horizontal summation of the
individual supply curves

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PRACTICE PAPER : 10
451. When price rises, quantity supplied-
(a) expand
(b) falls
(c) increases
(d) is unchanged
452. Which of the following statement is correct?
(a) Supply does not depends on Govts, tax policy
(b) Stock is the quantity brought to market for sale
(c) There is difference between stock and supply
(d) Stock and supply are always equal
453. The supply of good refers to-
(a) actual production of a good
(b) total stock of the good
(c) stock available for sale
(d) amount of the good offered for sale at a
particular price per unit of time
454. According to law of Supply-
(a) there is positive relation between supply and
price
(b) there is negative relation between supply and
price
(c) there is constant relation between supply and
price
(d) there is no relation between supply and price
455. ______ shows the quantity of goods a
producer or seller wishes to sell at a given price
level
(a) Average Product Curve
(b) Marginal Product Curve
(c) Supply Curve
(d) Total Product Curve
456. The supply curve slopes-
(a) Slopes downward from left to right
(b) Slopes upwards from left to right
(c) Slopes upward from right to left
(d) None of the above
457. Graphical presentation of supply curve of an
individual firm in the market is called-
(a) producer’s demand curve
(b) consumers demand curve
(c) individual supply curve
(d) market supply curve
458. When the state of technology improves,
supply
(a) fall
(b) contract
(c) increase
(d) expand
459. When government imposes taxes, supply will
(a) expand
(b) increase
(c) contract
(d) decrease
460. Movement along the supply curve occurs
due to-
(a) rise in price of the commodity
(b) fall in price of the commodity
(c) factors other than own price of the
commodity
(d) both ‘a’ and ‘b’
461. Supply curve shifts rightward due to-
(a) increase in the number of firms
(b) fall in the price of factors of production
(c) new and better technology
(d) all the above
462. Expansion of supply takes place due to-
(a) change in goal of the firm
(b) rise in price of the commodity
(c) number of firms
(d) technique of production
463. If producer expects an increase in price of
goods in the near future, then current supply will:
(a) fall
(b) rise
(c) remain constant
(d) become zero
464. When more units of the good are supplied at
a higher price, it is called-
(a) Contraction of supply
(b) Change in supply
(c) Extension in supply
(d) Increase in supply
465. When supply price increases in the short run,
the profit of the producer-
(a) Increases
(b) Decreases
(c) Remains constant
(d) Decreases a bit
466. The long-run supply curve of a diminishing
cost industry is-
(a) downward sloping to right
(b) upward sloping to left
(c) horizontal
(d) vertical
467. The law of supply does not apply to-
(a) agriculture goods
(b) industrial goods
(c) perishable goods
(d) both ‘a’ and ‘c’

52. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 52

468. When supply falls due to factors other than
own price of the commodity, it means-
(a) contraction of supply
(b) decrease in supply
(c) extension of supply
(d) none of these
469. In case of contraction of supply, there is-
(a) an upward movement on supply curve
(b) shift of supply curve to the right
(c) downward movement on supply curve
(d) shift to supply curve to the left
470. In case of increase in supply, there is –
(a) an upward movement on supply curve
(b) shift of supply curve to the right
(c) downward movement on supply curve
(d) shift to supply curve to the left
471. Imposition of a unit tax, shifts the supply
curve-
(a) to the right
(b) to the left
(c) to the right as well
(d) none of these as to the left
472. Due to incentives like tax holiday, subsidies
which reduces the cost of production, the supply
quantity will-
(a) Increase
(b) Decrease
(c) Remain Constant
(d) Become zero
473. In case of failure of rains, floods, etc. the
supply of agricultural goods will-
(a) Increase
(b) Decrease
(c) Remain constant
(d) Become zero
474. The percentage change in quantity supplied
due to percentage in price is called-
(a) Expansion of supply
(b) inelastic supply
(c) elasticity of supply
(d) changes in supply
475. Elasticity of supply refers to the responsiveness
of quantity supplied to changes in its-
(a) Demand
(b) Price
(c) Cost of production
(d) State of technology
476. When supply curve is a vertical straight line, it
indicates _____ supply
(a) unitary elastic
(b) perfectly elastic
(c) perfectly inelastic
(d) relatively elastic
477. A straight line supply curve passing through
origin forming 50° indicates-
(a) E =0
(b) Es= 1
(c) Es > 1
(d) Es < 1
478. Elasticity of supply for a positively sloped
supply cure that starts from price axis is –
(a) zero
(b) greater than one
(c) less than one
(d) equal to one
479. In case of perfectly elastic supply the supply
curve is-
(a) rising
(b) vertical
(c) falling
(d) horizontal
480. Supply is relatively elastic in-
(a) very short period
(b) short period
(c) long period
(d) both ‘b’ and ‘c’
481. When supply curve is parallel to X-axis,
elasticity of supply is-
(a) zero
(b) infinity
(c) unity
(d) negative
482. If the co-efficient of elasticity of supply is 0.6,
the supply is-
(a) perfectly inelastic
(b) inelastic
(c) perfectly elastic
(d) elastic
483. When upward sloping straight line curve
shoots up from quantity axis, it implies-
(a) Es < 1
(b) Es > 1
(c) Es = 1
(d) Es = 0
484. Which of the above curves unitary elastic
demand?

(a) Curve A
(b) Curve B

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(c) Curve C
(d) all the above
485. Elasticity of supply for a positively sloped
supply that shoots from origin
(a) Es < 1
(b) Es > 1
(c) Es = 1
(d) Es = ∞
486. The supply of perishable goods is-
(a) relatively elastic
(b) relatively inelastic
(c) perfectly elastic
(d) none of the above
487. The supply function of a commodity is given
by – Q = 20 + 3 Px. If the price is Rs. 6, the quantity
supplied is-
(a) 35 units
(b) 38 units
(c) 40 units
(d) 42 units
Refer the following supply function to answer 0.
Nos. 488 to 490
Qs = -10 + 2p
488. How much quantity is supplied at a price of
Rs. 10?
(a) 10 units
(b) 8 units
(c) 12 units
(d) 6 units
489. At which price, the supply would be zero?
(a) Rs. 1
(b) Rs. 3
(c) Rs. 4
(d) Rs. 5
490. Calculate the price at which, the firm is
willing to supply 100 units
(a) Rs. 55
(b) Rs. 50
(c) Rs. 45
(d) Rs. 40
491. When price of a commodity falls by 20%, the
quantity supplied falls by 25%, the price elasticity
of supply is-
(a) 0.75
(b) 1.25
(c) 1.50
(d) 1.75
492. A vegetable vendor sells 80 quintals of
potatoes at a price of Rs. 4 p. kg. The elasticity of
supply of potatoes is known to be 2. How much
quantity will he sell at Rs. 5 p. kg.?
(a) 100 quintals
(b) 110 quintals
(c) 120 quintals
(d) 130 quintals
493. When the price of a good rises from Rs. 15pu
to Rs. 19pu, its quantity supplied increases from 75
units to 95 units. The price elasticity of supply is-
(a) 1
(b) 2
(c) 3
(d) 4
494. Total revenue of a firm rises from Rs. 50 to Rs.
100 when the price rises from Rs. 5 pu to Rs. 10 pu.
The co-efficient of Es =
(a) 0
(b) 0.8
(c) 1
(d) 1.2
495. The price of a commodity doubles, to its
response the quantity supplied increases 4 times
of orig¬inal quantity supplied. The co-efficient of
price elasticity of supply is-
(a) 1
(b) 2
(c) 3
(d) 4
496. A price of Rs. 10 p.u. the quantity supplied is
500 units. If the price falls by 10% and quantity
supplied falls to 400 units, the co-efficient of price
elasticity of supply is-
(a) 1
(b) 2
(c) 3
(d) 4
497. Market forces refer to-
(a) Demand
(b) Supply
(c) Both ‘a’ and ‘b’
(d) Neither ‘a’ nor ‘b’
498. Supply is the-
(a) limited resources that are available with the
seller
(b) cost of producing a good
(c) entire relationship between the quantity
supplied and the price of good
(d) willingness to produce
499. In a very short period the supply-
(a) can be changed (b) cannot be changed
(c) can be increased (d) none of the above
500. If the demand is more than supply, then the
pressure on price will be-
(a) upward (b) downward
(c) constant (d) none of the above

54. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 54




















































ANSWER- PRACTICE
PAPER : 1
ANSWER- PRACTICE
PAPER : 2
ANSWER- PRACTICE
PAPER : 3
ANSWER- PRACTICE
PAPER : 4
ANSWER- PRACTICE
PAPER : 5
Question
No. Answer
Question
No. Answer
Question
No. Answer
Question
No. Answer
Question
No. Answer
1 D 51 D 101 A 151 D 201 A
2 D 52 D 102 B 152 D 202 B
3 D 53 B 103 C 153 A 203 C
4 A 54 B 104 A 154 A 204 A
5 C 55 C 105 C 155 B 205 D
6 C 56 B 106 D 156 C 206 B
7 B 57 A 107 B 157 B 207 A
8 A 58 B 108 C 158 D 208 B
9 D 59 A 109 A 159 C 209 A
10 B 60 D 110 B 160 B 210 C
11 A 61 C 111 D 161 A 211 B
12 C 62 D 112 C 162 B 212 A
13 B 63 B 113 D 163 D 213 C
14 A 64 A 114 B 164 D 214 B
15 B 65 B 115 B 165 D 215 D
16 D 66 B 116 C 166 C 216 C
17 D 67 B 117 A 167 B 217 D
18 A 68 C 118 C 168 A 218 D
19 B 69 B 119 D 169 B 219 B
20 C 70 C 120 C 170 A 220 C
21 C 71 D 121 B 171 A 221 C
22 B 72 A 122 A 172 C 222 A
23 B 73 D 123 A 173 D 223 C
24 D 74 D 124 B 174 D 224 B
25 A 75 A 125 C 175 B 225 A
26 B 76 C 126 D 176 A 226 C
27 D 77 B 127 A 177 C 227 D
28 C 78 B 128 D 178 D 228 B
29 A 79 D 129 A 179 A 229 B
30 C 80 A 130 C 180 B 230 D
31 C 81 B 131 B 181 A 231 A
32 B 82 C 132 C 182 D 232 D
33 A 83 C 133 D 183 A 233 B
34 C 84 B 134 D 184 B 234 A
35 C 85 D 135 B 185 B 235 C
36 B 86 B 136 D 186 B 236 A
37 A 87 A 137 D 187 A 237 C
38 C 88 D 138 D 188 C 238 A
39 A 89 B 139 B 189 D 239 D
40 A 90 C 140 C 190 B 240 B
41 B 91 A 141 A 191 B 241 C
42 A 92 B 142 B 192 D 242 C
43 B 93 C 143 C 193 B 243 C
44 C 94 D 144 A 194 B 244 D
45 D 95 C 145 D 195 A 245 A
46 A 96 A 146 D 196 C 246 B
47 D 97 D 147 B 197 D 247 A
48 C 98 B 148 D 198 D 248 C
49 B 99 D 149 D 199 B 249 C
50 A 100 B 150 A 200 C 250 B

55. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 55



ANSWER-
PRACTICE PAPER :
6
ANSWER-
PRACTICE PAPER :
7
ANSWER-
PRACTICE PAPER :
8
ANSWER-
PRACTICE PAPER :
9
ANSWER-
PRACTICE PAPER :
10
Question
No. Answer
Question
No. Answer
Question
No. Answer
Question
No. Answer
Question
No. Answer
251 C 301 D 351 C 401 C 451 A
252 C 302 B 352 C 402 D 452 C
253 A 303 C 353 C 403 A 453 D
254 B 304 A 354 A 404 B 454 A
255 D 305 D 355 B 405 C 455 C
256 C 306 C 356 A 406 D 456 B
257 B 307 D 357 C 407 C 457 C
258 C 308 C 358 D 408 A 458 C
259 B 309 A 359 A 409 D 459 D
260 D 310 B 360 B 410 D 460 D
261 D 311 A 361 D 411 D 461 D
262 A 312 C 362 C 412 A 462 B
263 C 313 B 363 A 413 D 463 A
264 A 314 A 364 B 414 B 464 C
265 C 315 B 365 A 415 B 465 A
266 B 316 A 366 B 416 A 466 A
267 D 317 D 367 A 417 C 467 D
268 D 318 C 368 B 418 D 468 B
269 A 319 C 369 C 419 C 469 C
270 C 320 D 370 D 420 A 470 B
271 A 321 B 371 C 421 D 471 B
272 C 322 C 372 B 422 C 472 A
273 B 323 B 373 D 423 B 473 B
274 C 324 D 374 D 424 A 474 C
275 A 325 A 375 C 425 C 475 B
276 C 326 C 376 A 426 B 476 C
277 A 327 B 377 A 427 A 477 B
278 C 328 C 378 B 428 C 478 B
279 C 329 B 379 A 429 D 479 D
280 B 330 D 380 A 430 C 480 C
281 B 331 D 381 C 431 A 481 B
282 A 332 C 382 B 432 B 482 B
283 C 333 A 383 A 433 A 483 A
284 D 334 D 384 C 434 B 484 D
285 A 335 C 385 C 435 D 485 C
286 C 336 A 386 C 436 B 486 B
287 D 337 D 387 D 437 A 487 B
288 D 338 B 388 B 438 A 488 A
289 B 339 D 389 D 439 B 489 D
290 D 340 A 390 B 440 C 490 A
291 C 341 A 391 D 441 A 491 B
292 C 342 C 392 A 442 C 492 C
293 B 343 D 393 D 443 C 493 A
294 A 344 A 394 C 444 B 494 A
295 B 345 A 395 B 445 A 495 D
296 D 346 B 396 C 446 C 496 B
297 C 347 D 397 B 447 A 497 C
298 C 348 B 398 A 448 C 498 C
299 D 349 D 399 B 449 A 499 B
300 B 350 D 400 B 450 B 500 A

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1. The term production in economics means-
(a) creation of a physical product only
(b) rendering of a service only
(c) creation of economic utilities
(d) none of the above
2. Which of the following is considered
production in economics?
(a) Singing a song in a birthday party
(b) Run for fun
(c) Giving tuitions
(d) Helping an old man to cross road
3. Making use of personal skill of doctors,
lawyers, actors, etc. results in the creation of-
(a) form utility
(b) place utility
(c) personal/service utility
(d) time utility
4. Making available materials at times when
they are normally not available is called
conferring of utility of-
(a) place
(b) time
(c) form
(d) service
5. Which of the following statements
incorrect?
(a) Man cannot create matter.
(b) Production is an activity of making some-
thing material only.
(c) Production can be defined as addition of
utility.
(d) Production is any economic utility which is
directed towards the satisfaction of the
wants of the people.
6. Economic utilities may be created or
added
(a) By changing the form of raw materials
into finished goods
(b) By transporting goods from one place to
another
(c) By making things available when they are
required
(d) All the above
7. Which of the following is not a feature of
land
(a) Free gift
(b) Limited in quantity
(c) Mobile factor
(d) Indestructible
8. The factor of production which has no
reserve price is-
(a) land
(b) labour
(c) capital
(d) all the above
9. Which of the following can be considered
as labour in economics-
(a) Singing for pleasure
(b) A teacher teaching his own child at
home
(c) Looking after, a sick friend
(d) A teacher teaching in school
10. The supply of land is-
(a) Unlimited
(b) Increased
(c) Decreased
(d) Limited
11. Land in economics means-
(a) Material and Non-material goods
(b) Minerals under the surface of earth
(c) All natural resources available to man for
producing wealth
(d) All the above
UNIT – 3
Supply & Market Equilibrium: Introduction, Meaning of Supply and Law of Supply,
Exceptions to the Law of Supply, Changes or Shifts in Supply. Elasticity of supply, Factors
Determining Elasticity of Supply, Practical Importance, Market Equilibrium and Changes in
Market Equilibrium. Production Analysis: Introduction, Meaning of Production and
Production Function, Cost of Production. Cost Analysis: Private costs and Social Costs,
Accounting Costs and Economic costs, Short run and Long Run costs, Economies of scale,
Cost-Output Relationship - Cost Function, Cost-Output Relationships in the Short Run, and
Cost-Output Relationships in the Long Run.

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12. Labour is-
(a) Active factor
(b) Passive factor
(c) Alternative factor
(d) None of the above
13. Which factor loses its value of it cannot
find a purchaser today-
(a) Land
(b) Labour
(c) Capital
(d) All the above
14. Supply curve of labour is-
(a) upward sloping
(b) horizontal
(c) backward bending
(d) vertical
15. Income effect when wage rises means
(a) work hours rise
(b) work hours fall
(c) work hours remain constant
(d) work hours first fall and then rise
16. Which of the following statements is not
true?
(a) Capital is a produced means a
production.
(b) Capital is a man made instruments of
production.
(c) Capital is a primary factor of production.
(d) Machine tools, factories, dams, canals,
etc. are examples of capital.
17. Tools, machines, etc. are included in-
(a) circulating capital
(b) fixed capital
(c) sunk capital
(d) human capital
18. The capital which belongs to the society
as a whole is called-
(a) Individual Capital
(b) Human Capital
(c) Social Capital
(d) Floating Capital
19. Raw material is an example of –
(a) Circulating Capital
(b) Fixed Capital
(c) Tangible Capital
(d) Real Capital
20. Which capital includes education,
training, skill, ability?
(a) Human Capital
(b) Individual Capital
(c) Social Capital
(d) Real Capital
21. Goodwill, patent rights, etc. are examples
of –
(a) Tangible Capital
(b) Real Capital
(c) Intangible Capital
(d) Human Capital
22. Which of the following statements is true?
(a) Capital Formation involves production of
more capital goods.
(b) Capital Formation is also called
investment.
(c) To accumulate capital goods, some
current consumption is to be sacrificed.
(d) All the above
23. Surplus of production over consumption in
an economy in a year is called-
(a) Capital
(b) Capital formation
(c) Stock
(d) Savings
24. The third stage of capital formation is-
(a) creation of savings
(b) mobilization of savings
(c) distribution of savings
(d) investment of savings
25. With an increase in income-
(a) the propensity to consume increases
(b) the propensity to save increases
(c) the propensity to consume remains
constant
(d) the propensity to save falls
26. A ____ country has greater ability to save.
(a) poor
(b) developing
(c) rich
(d) under developed
27. An individual’s saving level depends
upon-
(a) ability to save
(b) willingness to save
(c) both ‘a’ & ‘b’
(d) only ‘a’
28. The factor which mobilize land, labour
and capital; combines them in the right
proportion and then organizes the
production activity is –

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(a) Owner
(b) Labour
(c) Manger
(d) Entrepreneur
29. The reward of all factors of production is
usually predetermined (pre-fixed) except-
(a) Land
(b) Labour
(c) Capital
(d) Entrepreneur
30. The reward of an entrepreneur for his
efforts and risk-taking is-
(a) Interest
(b) Profit/Loss
(c) Rent
(d) Wages
31. The reward of capital is-
(a) Rent
(b) Interest
(c) Wages
(d) Profit
32. The reward of an entrepreneur i.e. profit is
–
(a) predetermined income
(b) residual income
(c) constant income
(d) none of the above
33. The risks which can be anticipated and
can be insured against are called-
(a) Insurable risks
(b) Non-Insurable risks
(c) Unforeseeable risks
(d) None of the above
34. The risks like change in demand for a
commodity, the cost structure, fashion,
technological, etc. which an entrepreneur
has to bear are called-
(a) Uncertainties
(b) Insurable risks
(c) Foreseeable risks
(d) Both ‘a’ and ‘c’
35. According to _____ innovations
introduced by an entrepreneur give rise to
profits.
(a) Prof. F.H. Knight
(b) Prof. Joseph A. Schumpeter
(c) Prof. Paul Samuelson
(d) Dr. Alfred Marshall
36. Which of the following statement is
incorrect?
(a) Mobilisation of savings is done through
network of banking and other financial
institutions.
(b) Land lacks geographical mobility but has
occupational mobility.
(c) Entrepreneur is also called the organizer, §
the manager or the risk taker.
(d) Labour can be stored.
37. Labour is ____
(a) Human factor
(b) Perishable
(c) inseparable from labour
(d) All the above
38. Leather in a shoe factory is
(a) Fixed capital
(b) Sunk capital
(c) Floating Capital
(d) Circulating capital
39. _____ Cannot be stored.
(a) Land
(b) Labour
(c) Capital
(d) Both a & b
40. Capital that can be used for several
purposes or by several industries is
(a) Working capital
(b) Social capital
(c) Floating capital
(d) Human capital
41. Addition to the stock of capital goods in a
country means
(a) Capital reduction
(b) Investment
(c) Capital formation
(d) Both (b) & (c)
42. Find the odd out
(a) Capital is man-made
(b) All capital is wealth
(c) Capital is durable
(d) Mobilisation of savings
43. Consider the following groups of items:
(i) Factory buildings
(ii) Plant and Machinery
(iii) Stocks of raw materials
(iv) Wage bills
Which of these are known as working
capital?
(a) i and ii

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(b) iii and iv
(c) i, ii and iii
(d) ii, iii and iv
44. The production function means
relationship between
(a) Cost of input
(b) Cost of output
(c) Physical input to physical output
(d) Wages of profit
45. A production function is an expression of
_____ relation between inputs and outputs.
(a) monetary
(b) economic
(c) quantitative
(d) qualitative
46. A short run production function is one in
which-
(a) at least one factor is fixed
(b) all factors are fixed
(c) all factors are variable
(d) at least one factor is variable
47. Technically efficient combinations of
inputs of those which-
(a) minimizes wastage
(b) maximizes profits
(c) minimises cost
(d) maximises reve¬nue
48. In the short period there is no change in
factors.
(a) fixed
(b) variable
(c) human
(d) physical
49. In the period all factors are variable.
(a) short
(b) long
(c) market
(d) secular
50. In its original for Cobb-Douglas production
function applies to-
(a) individual manufacturing firm
(b) individual firm
(c) whole of manufacturing in US
(d) None of the above

51. Cobb-Dauglas production function
revealed that the increase in the
manufacturing production was contributed
by labour and capital respectively by-
(a) 3/4 th and l/4 th
(b) l/4 th and 3/4 th
(c) 2/3 rd and l/3 rd
(d) None of the above
52. Cobb-Douglas production-
(a) is linear
(b) is homogeneous
(c) shows constant returns to scale
(d) all the above
53. Cobb-Douglas production function
exhibits returns to scale.
(a) increasing
(b) diminishing
(c) constant
(d) negative
54. The above equations shows that-
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 54
(a) One factor is fixed and another variable
(b) Both factors are fixed
(c) Both factors are variable
(d) Both factors are semi-variable
55. The main difference between the short
period/ run and the long period/run is that –
(a) in the short period all inputs are fixed,
while in the long period all inputs are
variable.
(b) in the short run at least one input is fixed
(c) in the short run firm varies the quantities of
all inputs
(d) in the long run, the firm uses the existing
plant capacity
56. The law of variable proportions is a law of
production which takes place in the-
(a) market period
(b) short run
(c) long run
(d) very long period
57. All but one are the assumptions of the law
of variable proportions. Which one is not?
(a) There is only one factor which is variable
(b) All units of variable factor are
homogeneous
(c) State of technology remains constant
(d) Applies in long run
58. When there is a fixed factor and a
variable factor, then the law would be-
(a) law of increasing returns to scale

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(b) law of constant returns to scale
(c) law of decreasing returns to scale
(d) law of variable proportions
59. The total quantity of goods and services
produced by a firm with the given inputs
during a specified period of time is called-
(a) Total Product
(b) Average Product
(c) Marginal Product
(d) Labour Product
60. The amount of output produced per unit
of variable factor employed is called-
(a) Total Product
(b) Average Product
(c) Marginal Product
(d) Labour Product
61. The change in TP resulting from the
employment of an additional unit of a
variable factor is called-
(a) Total Product
(b) Marginal Product
(c) Average Product
(d) All the above
62. The average product of a variable input
can be described as-
(a) total product divided by the number of
units of variable input
(b) additional output resulting from
employment of additional unit of variable
factor
(c) the total quantity of goods produced with
all inputs
(d) None of the above
63. TP of variable factor is –
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 63
(a) only i
(b) only i and iii
(c) only ii
(d) only ii and iv
64. Initially TP curve increases at an-
(a) increasing rate
(b) diminishing rate
(c) constant rate
(d) maximum rate
65. As more units of variable factor is
employed it will-
(a) always increase the TP
(b) always decrease the TP
(c) not always increase the TP
(d) always result in constant TP
66. As long as TP is positive, AP is-
(a) negative
(b) constant
(c) positive
(d) falling
67. AP curve is-
(a) U-Shaped
(b) S-Shaped
(c) inverted U-Shaped
(d) inverted S-Shaped
68. MP curve is the slope of at each point.
(a) AP curve
(b) TP curve
(c) TR curve
(d) AR curve
69. When TP is maximum, MP is –
(a) rising
(b) falling
(c) zero
(d) negative
70. When TP is falling, MP is –
(a) zero
(b) rising
(c) negative
(d) falling
71. MP curve is –
(a) U – shaped
(b) S- shaped
(c) inverted U – shaped
(d) inverted S – shaped
72. When TP is maximum, the slope of TP
curve is –
(a) rising
(b) falling
(c) constant
(d) zero
73. TP is the area under the –
(a) AP curve
(b) AR curve
(c) MP curve
(d) MR curve
74. MP is positive so long as TP is-
(a) increasing
(b) decreasing
(c) maximum
(d) negative

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75. When TP is rising-
(a) AP and MP are rising
(b) AP and MP are falling
(c) AP and MP may be either rising or falling
(d) Only MP is either rising or falling
76. When MP is negative-
(a) TP and AP are falling
(b) TP and AP are rising
(c) TP and AP are constant
(d) Only TP is falling
77. When MP is at a maximum-
(a) AP = MP and TP is rising
(b) AP < MP and TP is rising
(c) AP > MP and TP is rising .
(d) AP and TP are falling
78. If MP goes on increasing, it should be
understood that law of _____ is applying.
(a) increasing returns
(b) decreasing returns
(c) constant returns
(d) diminishing returns
79. If MP goes on decreasing it should be
understood that law of _____ is in operation.
(a) decreasing cost
(b) constant cost
(c) average cost
(d) increasing cost
80. When MP is falling, TP will increase at the
rate.
(a) constant
(b) increasing
(c) diminishing
(d) normal
81. When average product is maximum,
marginal product is equal to-
(a) total product
(b) zero
(c) one
(d) average product
82. MP curve cuts AP curve from-
(a) its top
(b) below
(c) both ‘a’ and ‘b’
(d) neither ‘a’ nor ‘b’
83. The marginal product is maximum at the .
(a) equilibrium point
(b) inflection point
(c) focal point
(d) optimum point
84. The stage of production where the
marginal product is greater than the average
product is-.
(a) stage of increasing returns
(b) stage of diminishing returns
(c) stage of negative returns
(d) stage of constant returns
85. Which of the following statements reveal
the diminishing returns?
(a) The MP of a factor is constant
(b) The MP of a factor is positive and rising
(c) The MP of a factor is falling and negative
(d) The MP of a factor is positive but falling
86. The MP curve is above the AP curve when
the average product-
(a) is constant
(b) is falling
(c) is increasing
(d) is negative
87. The actual stage of production under the
law of variable proportions is-
(a) stage of increasing returns
(b) stage of diminishing returns
(c) stage of negative returns
(d) stage of either increasing or diminishing
returns
88. Reason for rise in both AP and MP curves
is-
(a) under utilization of the fixed factor
(b) under utilization of the variable factor
(c) over utilization of the fixed factor
(d) over utilization of the variable factor
89. Reason for fall in both AP and MP curves
is-
(a) under utilization of the fixed factor
(b) over utilization of the fixed factor
(c) under utilization of the variable factor
(d) full utilization of the variable factor
90. When AP and MP curves are rising, MP
curve rises-
(a) at a faster rate
(b) at a lower rate
(c) at normal rate
(d) at constant rate
91. When AP and MP curves are falling, MP
curve falls-
(a) at a faster rate
(b) at a lower rate
(c) at normal rate
(d) at constant rate

62. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 62

92. When AP and MP curves are rising, AP
curve _____
(a) lies above the MP curve
(b) lies below the MP curve
(c) co-inside with the MP curve
(d) none of the above
93. The reason for increasing returns to factor
is-
(a) Indivisibility of fixed factor
(b) Division of labour
(c) Specialisation
(d) All the above
94. When the ideal factor ratio is violated in
short run-
(a) diminishing returns to a factor set in
(b) MP of the variable factor starts falling
(c) TP increases at a diminishing rate
(d) All the above
95. AP increases so long as-
(a) MP > AP
(b) MP < AP
(c) MP = AP
(d) MP is zero
96. AP may continue to even when MP starts
declining.
(a) rise
(b) fall
(c) remain constant
(d) fluctuate
97. MP curve cuts AP curve from its top, this
means-
(a) MP < AP
(b) MP > AP
(c) MP is rising
(d) MP is zero
98. Increasing MP implies TP is increasing at-
(a) increasing rate
(b) constant rate
(c) diminishing rate
(d) fluctuating rate
99. MP of labour becoming negative implies-
(a) excessive employment
(b) disguised unemployment
(c) over exploitation of the fixed factor
(d) all the above
100. TP starts declining only when-
(a) MP is rising
(b) MP is falling
(c) MP is negative
(d) MP is constant
101. MP of the variable factor may be zero or
negative, but AP continue to be-
(a) constant
(b) positive
(c) negative
(d) zero
102. AP decreases when-
(a) MP = AP
(b) MP > AP
(c) MP < AP
(d) None of the
Use the following information of answer
questions 103 to 105
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 102
103. In the above equations the fixed factor
is-
(a) Labour
(b) Capital
(c) Output
(d) both ‘a’ & ‘b’
104. The MP of variable factor is-
(a) 4
(b) 5
(c) 6
(d) 7
105. In the equation (i) the AP of the variable
factor is-
(a) 12 units
(b) 14
(c) 10
(d) 16
Use the following data to answer questions
106 and 107
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 105
TP is Zero level of employment
106. The total product when 5 units of labour
are employed is-
(a) 60
(b) 76
(c) 90
(d) 96

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107. The average product of 3rd unit of
labour is-
(a) 21
(b) 20
(c) 19
(d) 18
Use the following data to answer questions
108 and 109
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 107
108. The total product of 3 units of labour is-
(a) 30
(b) 50
(c) 90
(d) 120
109. The marginal product of 5th unit of
labour is-
(a) 10
(b) 20
(c) 30
(d) 40
Use the following data to answer questions
110 and 112
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 109
110. What is the total product when 2 hours of
labour are employed?
(a) 160
(b) 200
(c) 360
(d) 540
111. What is the average product of the first 2
hours
(a) 250
(b) 260
(c) 270
(d) 280
112. What is the marginal product of the 3rd
hour of labour?
(a) 160
(b) 180
(c) 120
(d) 200
113. Find the odd one out-
(a) law of diminishing returns to factor
(b) law of returns to scale
(c) cost function
(d) production function
114. The production process described below
exhibits
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 114
(a) increasing marginal product of labour
(b) increasing returns to scale
(c) diminishing marginal product of labour
(d) constant marginal product of labour
115. Diminishing marginal returns for the first
four doses of inputs when all factors of
production are increased in the same
proportion is revealed by the total product
sequence
(a) 50, 50, 50, 50
(b) 50, 100, 150, 200
(c) 50, 90, 120, 140
(d) 50, 110, 180, 260
116. The behaviour of output in response to a
change in the scale is studied in the-
(a) Market Period
(b) Short Period
(c) Long Period
(d) Very Short Period
117. In the theory of production the long runs
is defined as the period of time in which-
(a) All factors can be varied
(b) No factors can be varied
(c) Some factors are fixed but other can be
varied.
(d) None of these
118. If all inputs are increased in the same
proportion, then it is a case of-
(i) Short run production function
(ii) Long run production function
(iii) Laws of Variable Proportions
(iv) Laws of Returns to Scale
(a) i and ii only
(b) ii and iii only
(c) i and iv only
(d) ii and iv only
119. In the long run-
(a) all inputs are fixed
(b) one input is fixed and one input is variable
(c) all inputs are variable
(d) two inputs are variable and one input is
fixed

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120. Law of increasing returns to scale will
apply if-
(a) economies exceed the diseconomies
(b) economies and diseconomies are equal
(c) diseconomies exceed the economies
(d) in all the above situations
121. Internal economies accrue when-
(a) an industry develops
(b) an economy grows
(c) foreign trade develops
(d) a firm expands production in long run
122. External economies accrue when-
(a) a firm expands
(b) an individual progress
(c) an industry expands
(d) trade expands
123. If we have constant returns to scale and
we increase both labour and capital by 10%
output will also increase by-
(a) 20%
(b) 30%
(c) 10%
(d) 5%
124. Find the odd one out-
(a) All factors are variable
(b) A firm can experience returns to scale
(c) Management can be reorganized
(d) Law of variable proportions
125. Economies of scale means-
(a) reduction in per unit cost of production
(b) reduction in per unit cost of distribution
(c) addition to the per unit cost of production
(d) reduction in the total cost of production
126. Linear Homogeneous Production
Function is-
(a) Increasing Returns to Scale
(b) Constant Returns to Scale
(c) Diminishing Returns to Scale
(d) Negative Returns to Scale .
127. Internal economies relate to
(a) Marketing economies
(b) Financial economies
(c) Managerial economies
(d) All the above
128. In which of the following cases there is
less than proportionate increase in output
when all factors are increase-
(a) Constant returns to scale
(b) Diminishing returns to scale
(c) Increasing returns to scale
(d) Increasing as well as diminishing returns to
scale
129. Problems like difficulties in management,
lack of supervision, higher input cost, etc. due
to large scale production leads to-
(a) economies of scale
(b) real economies of scale
(c) diseconomies of scale
(d) Both ‘b’ and ‘c’
130. Benefits like improved organization,
division of labour and specialization, better
supervision and control, etc. enjoyed by a
firm when it expands production leads to-
(a) economies of scale
(b) real economies
(c) diseconomies of scale
(d) both ‘a’ and ‘b’
131. _____ economies are common to all the
firms in an industry and shared by many firms
or industries.
(a) internal
(b) external
(c) real
(d) all the above
132. _____ economies are related to an
individual firm’s own cost reduction effort.
(a) internal
(b) external
(c) real
(d) all the above
133. means all those factors which raise the
cost of production per unit when production
is expanded by a firm beyond optimal
capacity.
(a) External economies
(b) Internal economies
(c) External diseconomies
(d) Internal diseconomies
134. Economies of localization, cheaper
inputs, growth of ancillary industries, etc. are
examples of-
(a) Internal economies
(b) Internal diseconomies
(c) External economies
(d) External diseconomies
135. _____ economies can be of long term in
nature
(a) nature
(b) internal

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(c) production
(d) real
136. _____ shows all the input combinations
that will produce the same level of output.
(a) Isoquant
(b) Isocost line
(c) Expansion Path
(d) None of the above
137. Isoquant is also called as _____
(a) production indifference curve
(b) is-product curve
(c) equal-product curve
(d) all the above
138. All of the following are the properties of
isoquant except-
(a) An isoquant is downward sloping curve
(b) A higher isoquant represents a higher
level of output
(c) Two isoquants can intersect each other
(d) Isoquants are convex to the origin
139. An isoquant slopes-
(a) downward to the left
(b) downward to the right
(c) upward to the left
(d) upward to the right
140. In the context of input-output relation
_____ means same output produced from
different combinations of inputs.
(a) law of variable proportions
(b) ridge lines
(c) law of constant returns
(d) isoquant
141. A higher isoquants denotes a –
(a) higher level of output
(b) lower level of output
(c) same level of output
(d) none of the above
142. An isoquant is _____ indifference curve
(a) buyer’s
(b) producer’s
(c) trader’s
(d) economy’s
143. The rate of which one factor of
production can be substituted for the other is
known as-
(a) marginal rate of substitution
(b) marginal opportunity cost
(c) marginal rate of technical substitution
(d) marginal cost
144. The slope is iso-product curve show-
(a) MRSxy
(b) MRTSxy
(c) elasticity of an iso-product curve
(d) none of the above
145. An isoquant is-
(a) downward sloping and concave to origin
(b) downward sloping and convex to origin
(c) downward sloping straight line curve
(d) horizontal straight line curve
146. The convexity of isoquants is due to the
_____ MRTSxy
(a) increasing
(b) constant
(c) diminishing
(d) none of the above
147. Convexity of an isoquant implies _____
slope.
(a) diminishing
(b) increasing
(c) constant
(d) none of the above
148. MRTSxy is constant then an isoquant is
_____
(a) downward sloping and convex to origin
(b) downward sloping straight line curve
(c) right angled curve
(d) downward sloping and concave to origin
149. MRTSxy is increasing then an isoquant is
(a) downward sloping and convex to origin
(b) downward sloping straight line curve
(c) right angled curve
(d) downward sloping and concave to origin
150. A right-angled isoquant denotes that the
(a) two factors are perfect substitutes of
each other
(b) two factors are imperfect substitutes of
each other
(c) two factors are perfect complements of
each other
(d) position between perfect substitutes and
perfect complements
151. The MRTSxy is constant if two factors are
_____ of each other
(a) perfect substitutes
(b) perfect complements
(c) imperfect substitutes
(d) imperfect complements

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152. MRTSxy =
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 152
153. Increasing MRTSxy could happen only
when the _____ operate.
(a) law of increasing returns
(b) law of diminishing returns
(c) law of constant returns
(d) law of negative returns
154. Which of the following isoquant indicates
that the two factors ‘X’ and ‘Y’ are imperfect
substitutes of each other?
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 154
155. At a point near the right hand below the
corner of isoquant curve, the MRTSxy of
factor ‘X’ for factor ‘Y’ is –
(a) very high
(b) very low
(c) zero
(d) neither high nor low
156. Convexity of an isoquant denotes that
the two factors are _____ of each other.
(a) perfect complements
(b) imperfect complements
(c) perfect substitute
(d) imperfect substitutes
157. In order to increase output, if both inputs
mustbe increased in fixed proportion, it
follows that both the inputs are ____ of each
other.
(a) perfect substitutes
(b) perfect complements
(c) imperfect substitutes
(d) imperfect complements
158. _____ is the locus of various combinations
of two inputs which a producer can buy with
the given outlay and the prices of two inputs.
(a) Isocost line
(b) Opportunity cost line
(c) Production line
(d) Profit line
159. Isocost line is also known as _____
(a) outlay line
(b) price line
(c) producer’s budget line
(d) all the above
160. If the expenditure to be done on
purchase of factors increases, the prices of
both inputs remaining the same, the firm’s
isocost line will –
(a) shift downward
(b) shift upward
(c) remain the same
(d) none of the above
161. The slope of the isocost line can change
when the outlay remains the same but the
price of –
(a) only one input change
(b) both the inputs change
(c) both inputs remain unchanged
(d) Both ‘a’ and ‘b’
162. The iso-cost line in production
optimization is _____
(a) Vertical straight line
(b) Straight line sloping upward towards right
(c) Straight line sloping downwards towards
right
(d) Horizontal straight line
163. The slope of isocost line with factor ‘Y’ on
the vertical axis and factor ‘X’ on the
horizontal axis is –
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 163
164. At equilibrium point, a particular
isoquant _____ to isocost line
(a) tangent
(b) perpendicular
(c) parallel
(d) concave
165. Where the slope of isoquant = the slope
of isocost line, it is the _____ combination of
inputs.
(a) maximum cost
(b) least cost
(c) balanced cost
(d) cost-production
166.
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 166
(a) consumer is in equilibrium
(b) consumer is not in equilibrium
(c) producer is in equilibrium
(d) producer is not in equilibrium

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167. Where the isocost line is tangent to an
isoquant-
(a) equal amount of factors give equal
output
(b) the prices of the factors are equal
(c) the ratio of prices of the two factors equal
MRTS
(d) none of the above
168. All but one of the following statements
are correct. Find the incorrect statement.
(a) The word isoquant means equal
quantities.
(b) The slope of isoquant is called MRTS.
(c) The producer is at equilibrium where
MRTSxy = px / py
(d) A set of isoquant curves is called isocost
map.
169. If there is perfect substitution between
two factors of production the shape of
isoquant is-
(a) linear
(b) non-linear
(c) positively sloped
(d) right angled
170. Condition for the producer’s equilibrium
is-
(a) Isoquant should be tangent to the isocost
line
(b) At tangency point, isoquant should be
convex to origin
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 170
(d) all the above
171. Technically efficient combinations of
inputs is those which-
(a) minimizes cost
(b) minimizes loss
(c) maximizes profits
(d) maximizes revenue
172. Internal economies and diseconomies of
scale occur due to _____ causes.
(i) endogenous
(ii) exogenous
(iii) internal
(iv) external
(a) i and ii
(b) iii and iv
(c) i and iii
(d) ii and iv
173. External economies and diseconomies of
scale occur due to _____
(a) endogenous
(b) exogenous
(c) internal
(d) both (b) and (c)
174. When a large firm takes up advertising
and grants higher margin to retailers, it is
called-
(a) technical economies
(b) managerial economies
(c) marketing economies
(d) financial economies
175. When a firm’s dependence on external
sources of funds increase and it finds difficulty
to repay, it is a case of –
(a) financial diseconomies
(b) financial economies
(c) managerial diseconomies
(d) technical diseconomies
176. A firm uses two inputs, labour (L) and
capital (K). The firm produces and sells a
given output. You have the following
information PL = ₹40; PK = ₹ 100; MPL = 40;
MPK = 40. What would you say about the
firm?
(i) That the firm is operating efficiently
(ii) That, the firm is not operating efficiently
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 176
(a) Only i
(b) Only ii
(c) i and iii
(d) ii and iv
177. A firm can hire additional labour @ ₹ 50
per hour. By hiring 10 more hours of labour
output will increase by 3 units. If per unit sells
for ₹ 200, should the firm hire the labour?
Why?
(a) No ∴ MP of labour < price of labour
(b) Yes ∴ MP of labour > price of labour
(c) Neither ‘a’ or ‘b’
(d) Only ‘a’
178. If MRTSLK,equals 2, then the MPK / MP1
(a) 1/2
(b) 2/1
(c) 1/1
(d) 0/1
179. Suppose that we are producing holes.
The only way to get a hole is to use one man

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and one shovel. What shall be the shape of
isoquants?
(a) downward sloping and convex to origin
(b) downward sloping straight line curve
(c) downward sloping and concave to origin
(d) light angled curve
180. You are doing homework. The inputs
needed to produce homework is blue ink
pen or black ink pen. What shall be the
shape of isoquants?
(a) downward sloping and convex to origin
(b) downward sloping straight line curve
(c) downward sloping and concave to origin
(d) right angled curve
181. When 5 units of variable factor are
combined with 5 units of fixed factor and MP
remains constant at 10 units. Find TP
(a) 30
(b) 40
(c) 50
(d) 60
182. The production function of a firm is- Q =
5L 1/2 K 1/2 What would be the maximum
possible output the firm can produce with
100 units of L and 100 units of K.
(a) 500
(b) 400
(c) 600
(d) None of the above
183. The production function of a firm is- Q = 2
L2 K2 Find the output the firm can produce
with 5 units of L and 2 units of K.
(a) 100
(b) 200
(c) 300
(d) 150
184. What will be the output with 10 units of L
and 10 units of K, if the production function is
Q = 5L + 2K production
(a) 50
(b) 60
(c) 70
(d) 80
185. From the following find out AP and MP of
4th unit of Labour.
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 185
(a) 15 ; 15
(b) 10 ; 15
(c) 10 ; -15
(d) 10 ; -10
Theory of Cost
186. Cost analysis refer to the study of ____
inrelation to different production criteria.
(a) production
(b) cost
(c) price
(d) inputs
187. Cost is a _____ function
(a) direct
(b) derived
(c) both direct and derived
(d) none of the above
188. Theory of costs is restatement of the
theory of _____ in monetary terms
(a) demand
(b) consumer’s behaviour
(c) production
(d) all the above
189. _____ costs relate to those costs which
involve cash payments by the entrepreneur
of the firm.
(a) Accounting
(b) Marginal
(c) Economic
(d) Implicit
190. Accounting costs are also called _____
costs.
(a) economic
(b) implicit
(c) explicit
(d) opportunity
191. Wages paid to labourers, cost of raw-
materials purchase, interest on the money
borrowed, etc. are examples of _____ cost.
(i) accounting
(ii) implicit
(iii) economic
(iv) explicit
(a) i and ii
(b) iii and iv
(c) ii and iii
(d) i and iv
192. Economic costs includes-
(a) Accounting cost + Explicit cost
(b) Accounting cost + Implicit cot
(c) Fixed cost + Variable cost
(d) Accounting cost + Direct cost

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193. Economic costs equals-
(a) Explicit cost + Implicit cost
(b) Fixed cost + Variable cost
(c) Accounting cost + Explicit cost
(d) none of the above
194. _____ costs are the value of foregone
opportunities that do not involve any
contractual obligation of cash payment.
(a) Explicit
(b) Implicit
(c) Accounting
(d) Hidden
195. _____ includes all payments made to
factors of production and opportunity cost.
(a) Accounting costs
(b) Economic costs
(c) Implicit costs
(d) Explicit costs
196. An entrepreneur must recover his _____
cost if he wants to earn normal and
abnormal profits.
(a) accounting
(b) implicit
(c) economic
(d) all the above
197. Which of the following are implicit costs?
(i) A shop taken on rent by entrepreneur
(ii) Savings invested to start business
(iii) An individual is both owner and manager
of business
(iv) A farmer takes a farm on rent
(a) i and ii
(b) iii and iv
(c) ii and iii
(d) i and iv
198. Which of the following are explicit costs?
(i) A producer borrows money to start a
factory
(ii) A producer invests his savings to start a
factory
(iii) Wages paid to workers
(iv) An individual is both owner & manager of
business
(a) i & ii
(b) iii & iv
(c) i & iii
(d) ii & iv
199. The difference between Economic Cost
and Accounting Cost is equal to _____
(a) Implicit cost
(b) Explicit cost
(c) Marginal cost
(d) none of the above
200. All but one is not included in the books of
account? Which one?
(a) Taxes
(b) Electricity charges
(c) Cost of raw-material
(d) Imputed salary of owner

201. _____ costs involve actual expenditure of
funds on wages, material, rent, etc.
(a) Opportunity
(b) Outlay
(c) Economic
(d) Implicit
202. The cost that a firm incurs in purchasing
or hiring, the services of various productive
factors is referred to as-
(a) Explicit cost
(b) Fixed cost
(c) Implicit cost
(d) Variable cost
203. Explicit costs are also known as-
(a) Accounting costs
(b) Outlay costs
(c) Out-of-Pocket costs
(d) All the above
204. For an economist, the cost means-
(a) Accounting Costs
(b) Economic Costs
(c) Outlay Costs
(d) Sink Cost
205. Implicit costs are also known an-
(a) Opportunity costs
(b) Imputed costs
(c) Notional costs
(d) All the above
206. Opportunity cost refers to-
(a) money expenses incurred on purchasing
or hiring factor, services
(b) the next best alternative
(c) involving cash payment
(d) all the above
207. Opportunity cost refers to-
(a) Cost of opportunity foregone
(b) Comparison between the policy that was
chosen and the policy that was rejected

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(c) Costs relating to sacrificed alternatives
(d) all the above
208. The cost of one thing in terms of the
alternative given up is known as-
(a) Production cost
(b) Accounting cost
(c) Opportunity cost
(d) Real cost
209. Opportunity costs find its application in
situations _____
(a) for short run and long run decision making
(b) capital expenditure budgeting
(c) when the supply of input factors is strictly
limited
(d) all the above
210. Opportunity costs are a result of _____
(a) Abundance of resources
(b) Scarcity of resources
(c) Technology obsolescence
(d) Cost controls
211. All but one are true about opportunity
cost. Which one is not true?
(a) Opportunity costs are recorded in the
books of account.
(b) Opportunity costs are applicable to those
factors which have alternative uses.
(c) Opportunity cost is also known as
‘alternative cost’
(d) Opportunity cost is also known as
‘displacement cost’
212. If no sacrifice is involved, then the
opportunity cost is
(a) very high
(b) very low
(c) zero
(d) both ‘b’ & ‘c’
213. The concept of opportunity cost helps us
to know that-
(a) resources are scarce,
(b) resources have alternative uses,
(c) how scarce resources get allocated in
different production activities
(d) all the above
214. If you give up a full-time job to go to
college, the major cost is –
(a) tuition fees
(b) room and board
(c) the income you could have earned from
job
(d) social expenses
215. If a firm’s machinery, has no possible
alternative use, its opportunity cost is –
(a) high
(b) low
(c) zero
(d) none of the above
216. If you own a cottage in Shimla which
you could rent for August and September to
some family for a net gain of ₹ 20,000/- after
all expenses and taxes, the opportunity cost
of living in it yourself for summer is _____
(a) ₹ 10,000
(b) ₹ 20,000
(c) ₹ 30,000
(d) ₹ 40,000
217. Cost of getting something involves losing
something else means –
(i) accounting costs
(ii) opportunity costs
(iii) explicit costs
(iv) implicit costs
(a) Only i
(b) ii and iii
(c) i and iii
(d) ii and iv
218. The costs which can be identified easily
and indisputably with a unit of operation, a
product, a department, a plant or a process
are called-
(i) direct cost
(ii) indirect cost
(iii) traceable cost
(iv) non-traceable cost
(a) Only i
(b) ii and iii
(c) i and iii
(d) ii and iv
219. _____ costs are not identified readily and
indisputably to specific product, process,
department, plant, operations, etc.
(a) Indirect costs
(b) Traceable costs
(c) Non-traceable costs
(d) Both ‘a’ & ‘c’
220. Accounting process recognizes-
(a) direct costs
(b) indirect cost
(c) only direct costs
(d) both direct and indirect costs
221. The function which gives least cost
combinations of inputs corresponding to

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different levels of output is called-
(a) Production function
(b) Demand function
(c) Cost function
(d) Supply function
222. Cost functions are derived from _____
(a) Demand function
(b) Supply function
(c) Isoquant function
(d) Production function
223. _____ refers to the functional relationship
between cost of a product and the various
determinants of cost.
(a) Cost function
(b) Isoquant function
(c) Production function
(d) Supply function
224. In a cost function, the total cost or cost
per unit is a/an _____
(a) Dependent Variable
(b) Independent Variable
(c) Either ‘a’ or ‘b’
(d) Neither ‘a’ nor ‘b’
225. In a cost function, the prices of factors of
production is a/an _____
(a) Dependent Variable
(b) Independent Variable
(c) Either ‘a’ or ‘b’
(d) Neither ‘a’ nor ‘b’
226. Which one of the following is the
dependent variable in a cost function?
(a) Level of capacity utilization
(b) Lot size of output
(c) Scale of operations
(d) Total Cost
227. Which one of the following is an
independent variable in a cost function?
(a) Cost per unit
(b) Total cost
(c) Managerial efficiency
(d) None of the above
228. All but one are independent variables.
Which one is not independent variable?
(a) Quantity of output
(b) Prices of factors of production
(c) Per unit cost of production
(d) Time Period under study
229. Which one of the following is not a
determinant of the firm’s cost function?
(a) Price of firm’s output
(b) Production function
(c) Price of labour
(d) Rent paid for use of building
230. The functional relationship between
output and the long-run cost of production is
called _____
(a) Cost function
(b) Production function
(c) Long-run Cost function
(d) Long-run Production function
231. Law of Returns to Scale forms the basis of
_____ cost function
(a) Long-run
(b) Short-run
(c) Fixed
(d) all the above
232. A cost function determines the
behaviour of cost with change in _____
(a) Output
(b) Input
(c) Technology
(d) Wages
233. Increase in the size of a firm and its
production capacity determines _____
(a) Short-run production function
(b) Long-run production function
(c) Fixed production function
(d) None of the above
234. When a firm operates with a given scale
of production it affects the _____
(a) Long-run production function
(b) Fixed production function
(c) Short run production function
(d) All the above
235. Find the odd one-
(a) Output
(b) Price of raw-materials
(c) Time period
(d) Total cost
236. The costs which do not change with the
level of output are called :
(i) Supplementary Costs
(ii) Money Costs
(iii) Overhead Costs
(iv) Prime Cost
(a) i & ii
(b) ii & iii
(c) i & iii
(d) i, ii, iii & iv

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237. The costs which change with the level of
output are called _____
(a) Prime cost
(b) Direct cost
(c) Variable cost
(d) All the above
238. The costs which remain constant at all
the levels of output are called _____
(a) Supplementary Costs
(b) Fixed Costs
(c) Overhead Costs
(d) All the above
239. Fixed costs includes-
(a) Historical costs
(b) Explicit costs
(c) Implicit costs
(d) Both ‘b’ and ‘c’
240. At zero level of output _____ cost can
never be zero.
(a) Variable
(b) Fixed
(c) Direct
(d) Real
241. At zero level of output cost _____ is zero.
(a) Fixed
(b) Overhead
(c) Variable
(d) Real
242. _____ costs are incurred even before
production starts
(a) Fixed
(b) Variable
(c) Real
(d) Marginal
243. _____ costs are incurred after the
production actually starts.
(a) Fixed
(b) Variable
(c) Marginal
(d) Real
244. At zero level of output Fixed Cost must
be greater than Variable Cost.
(a) False
(b) Partially True
(c) True
(d) None of the above
245. Fixed Costs are a function of _____
(a) Time
(b) Output
(c) Both time and output
(d) All the above
246. Variable Costs are a function of _____
(a) Time
(b) Output
(c) Both time and output
(d) All the above
247. _____ costs are directly or positively
related to output.
(a) Fixed
(b) Stair-step
(c) Semi-Variable
(d) Variable
248. When production level is zero, then fixed
cost is-
(a) zero
(b) negative
(c) positive
(d) equal to variable cost
249. Which of the following indicates fixed
costs?
(a) Electricity Bill
(b) Wages to daily labourers
(c) Expenses on transportation
(d) Interest on fixed capital
250. Variable costs include costs of-
(a) Hiring the building for the factory
(b) Purchase of heavy machines
(c) Pay wages to factory manager
(d) Paying for power and fuel
251. Which one of the following is correct?
(a) TC = TFC × TVC
(b) TC = TFC ÷ TVC
(c) TC = TFC + TVC
(d) TC = TFC – TVC
252. Which cost increases continuously with
the increase in production?
(a) Average cost
(b) Marginal cost
(c) Fixed cost
(d) Variable cost
253. When output is increased variable cost
also rises initially at _____ rate and later at
_____ rate.
(a) diminishing; constant
(b) increasing; constant
(c) diminishing; increasing
(d) constant; increasing

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254. The costs which are neither perfectly
variable, nor absolutely fixed when output
level are changed are _____
(a) Variable costs
(b) Semi Variable costs
(c) Stair Step costs
(d) Prime costs
255. _____ costs are independent of the level
of output.
(a) Fixed
(b) Variable
(c) Marginal
(d) Semi Variable costs
256. TVC can be calculated as-
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 256
257. TC reflect the behaviour of-
(a) TFC
(b) TVC
(c) AFC
(d) None of the above
258. At zero level of output Total Cost of
Production is equal to-
(a) Total Fixed Cost
(b) TotalVariableCost
(c) Marginal Cost
(d) Explicit Cost
259. Total Fixed Cost Curve is indicated by a-
(a) Positively sloped Curve
(b) Vertical Straight Line Curve
(c) Horizontal Straight Line Curve
(d) Negatively sloped Curve
260. Total cost curve shoots from a point on Y-
axis means-
(a) we are referring to the short period
(b) we are referring to the long period
(c) we are referring to the market period
(d) we are referring to the secular period
261. In the short period, TC = ∑ MC Is it correct
?
(a) Yes
(b) No, as TC = TFC + ∑ MC
(c) Partially correct
(d) none of the above
262. Total Variable Cost initially rises at a
diminishing rate due to-
(a) increasing returns to factor
(b) increasing returns to scale
(c) diminishing returns to factor
(d) diminishing returns to scale
263. Total Variable Cost curve shoots
upwards from-
(a) a certain point on quantity axis
(b) a certain point on cost axis
(c) origin
(d) Any of the above
264. TFC curve will be a straight line –
(a) Parallel to X-axis
(b) Parallel to Y-axis
(c) Sloping upward from left to right
(d) Sloping downward from left to right
265. Total Variable Cost curve originate from
the point of origin means-
(a) Variable cost is zero at zero output
(b) Variable cost has to be incurred at zero
output
(c) Variable cost is diminishing
(d) All the above
266. The total cost curve and total variable
cost curve are parallel because-
(a) Vertical distance between the two is total
fixed cost which is constant
(b) behaviour of total cost depends upon
total variable cost
(c) change in total cost is only due to
change in variable cost
(d) all the above
267. The vertical distance between TVC and
TC is equal to –
(a) Marginal Cost
(b) Total Fixed Cost
(c) Average Variable Cost
(d) None of the above
268. The fixed cost per unit of output is called-
(a) Average Fixed Cost (b) Total Fixed Cost
(c) Marginal Cost (d) None of the above
269. In the short run, when output of a firm
increases, its average fixed cost-
(a) rises continuously
(b) falls continuously
(c) remain constant
(d) first rises and then falls
270. Average Fixed Cost curve _____
(a) slope upwards
(b) slope downwards
(c) is TJ’ shaped
(d) is ‘S’ shaped

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271. Total Variable Curve is _____ shaped
(a) ‘U’ shaped
(b) Inverted’U’shaped
(c) Inverted ‘S’ shaped
(d) ‘C’ shaped
272. Average Fixed Cost curve is indicated
by-
(a) a rectangular hyperbola
(b) a straight line parallel to X-axis
(c) a straight line parallel to Y-axis
(d) a ‘U’ shaped curve
273. Average Fixed Cost curve will never
touch-
(a) X-axis
(b) Y-axis
(c) both ‘a’ and ‘b’
(d) none of the above
274. Average Variable Cost equals-
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 274
275. Which of the following falls continuously?
(a) Marginal Cost
(b) Average Fixed Cost
(c) Average Variable Cost
(d) Total Fixed Cost
276. Average Variable Cost falls as output is
expanded-
(a) upto normal capacity output
(b) beyond normal capacity output
(c) all the levels of output
(d) Nothing can be said
277. Beyond normal capacity output, as
output in-creases AVC will-
(a) remain constant
(b) decrease
(c) increase
(d) nothing can be said
278. Average variable cost is inversely related
to _____
(a) MP of variable factor
(b) AP of variable factor
(c) TP
(d) nothing can be said
279. AVC falls as output increases upto
normal ca-pacity due to-
(a) constant returns to scale
(b) diminishing returns to factor
(c) increasing returns to factor
(d) negative returns to factor
280. AVC curve is-
(a) ‘S’ shaped
(b) ‘U’ shaped
(c) Inverted ‘S’ shaped
(d) Inverted’U’shaped
281. _____ and _____ curves start from the
same point on Y-axis which is above the
origin.
(a) TFC and TVC
(b) TVC and TC
(c) TFC and TC
(d) None of the above
282. Two curves which are inverted ‘S’
shaped are –
(a) TFC and TVC
(b) TVC and TC
(c) TC and AVC
(d) AFC and AVC
283. Average Cost curve is-
(a) Horizontal Line parallel to x-axis
(b) Inverted ‘S’ shaped
(c) Inverted ‘U’ shaped
(d) ‘U’ shaped
284. When output is increased Average Cost
at all the levels of output includes both AVC
and AFC means that-
(a) AC curve will always lie above the AVC
curve
(b) AC curve will always lie below the AVC
curve
(c) AC and AVC are parallel to each other
with same vertical distance throughout
(d) None of the above
285. The vertical gap between AC and AVC
curves as the output increases.
(a) increases
(b) decreases
(c) remain constant
(d) None of the above
286. Since AFC can never be zero, _____ and
_____ curves never intersect each other
(a) AC and MC
(b) AC and AFC
(c) AC and AVC
(d) None of the above
287. The two inverted ‘S’ shaped short run
cost curves are parallel to each other and

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maintain a constant distance of ₹ 100. Which
cost is indicated by ₹100?
(a) Total Variable Cost
(b) Total Cost
(c) total Fixed Cost
(d) Average Fixed Cost
288. Find the odd one out-
(a) Salary to manager of the company
(b) Payment of insurance premium for
insurance of factory
(c) Interest on loan taken from Union Bank
(d) Payment of excise duty
289. Average Fixed Cost falls as the output
rises because-
(a) AFC and output are inversely related
(b) AFC and output are positively related
(c) AFC and output are not related
(d) All the above
290. Production at the loss of _____ may
continue in short run.
(a) Variable Cost
(b) Fixed Cost
(c) Marginal Cost
(d) Direct Cost
291. Production at the loss of _____ cannot be
continued in short run.
(a) Direct Cost
(b) Fixed Cost
(c) Marginal Cost
(d) Variable Cost
292. Which of the following statements is
correct of the relationship among the short
run costs?
(a) ATC = AFC – AVC
(b) AVC = AFC + ATC
(c) AFC = ATC + AVC
(d) AFC = ATC -AVC
293. Average Total Cost equals-
CA Foundation Business Economics Study
Material Chapter 3 Theory Of Production and
Cost - MCQs 293
294. Average Total Cost means-
(a) The general average cost
(b) The average cost of producing one unit
(c) The cost of producing the last unit
(d) None of the above
295. Average Cost curve contains in it-
(a) Normal Profits
(b) No Normal Profits
(c) Both ‘a’ and ‘b’
(d) None of the above
296. Average Cost curve is a _____
(a) ‘S’ shaped curve
(b) T shaped curve
(c) ‘U’ shaped curve
(d) Straight Line
297. When expressed as an average, it shows
a continuous fall with increase in output-
(a) the average cost of a firm
(b) the fixed cost of a firm
(c) marginal cost
(d) variable cost
298. An addition to the total cost caused by
producing one more unit of output is called
_____
(a) average cost
(b) marginal cost
(c) fixed cost
(d) variable cost
299. Marginal Cost varies inversely with _____
in short run
(a) average product of variable factor
(b) total product
(c) marginal product of variable factor
(d) both ‘a’ and ‘b’
300. Marginal Curve is _____
(a) ‘U’ shaped
(b) ‘L’ shaped
(c) ‘S’ shaped
(d) downward sloping continuously

301. At the minimum average cost, a firm can
produce the _____
(a) maximum output
(b) optimum profit
(c) optimum output
(d) marginal output
302. Any change in Marginal Cost will lead to
a change in firm’s _____
(a) total fixed cost
(b) total variable cost
(c) average fixed cost
(d) both ‘a’ and ‘c’
303. With increase in output, the average
fixed cost will fall in _____
(a) very long period
(b) long period

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(c) market period
(d) short period
304. Marginal Cost is the slope of _____ curve.
(a) total variable cost
(b) total fixed cost
(c) average cost
(d) all the above
305. When total variable cost rises at a
diminishing rate, marginal cost _____
(a) rises
(b) remain constant
(c) falls
(d) none of the above
306. When TVC rises at an increasing rate, MC
_____
(a) rises
(b) falls
(c) remain constant
(d) none of the above
307. Graphically, the area under the Marginal
Cost curve is _____
(a) TFC
(b) TVC
(c) TC
(d) AC
308. Marginal Cost Curve cuts the Average
Cost Curve at its _____
(a) falling part
(b) rising part
(c) minimum point
(d) both ‘a’ and ‘b’
309. Marginal Cost is independent of
(a) fixed cost
(b) variable cost
(c) opportunity cost
(d) output
310. All but one are ‘U’ shaped
(a) The AVC curve
(b) The AC curve
(c) The MC curve
(d) The AFC curve
311. Find the Odd One out of the following
(a) TCn – TCn-1
(b) TFCn – TFCn-1
(c) TVCn-TVCn -1
(d) TCn-(TVCn-1+TFCn-1) .
312. The point at which marginal cost equate
average cost shows-
(a) The maximum Profit
(b) The equilibrium point of the consumer
(c) The plant capacity
(d) The minimum price of the product
313. Which of the following is incorrectly
matched?
(a) MC – ‘U’ shaped
(b) AFC – Rectangular Hyperbola
(c) TC – ‘J’ shaped
(d) AVC – ‘U’ shaped
314. If a table shows number of units
produced and average cost of each unit,
one can calculate-
(a) AVC
(b) MC
(c) TC
(d) All the above
315. Consider the following statements and
point the correct one-
(a) If MC curve is below the AC curve, then
the AC curve must be rising
(b) When MC curve is above the AC curve,
then the AC curve must be falling
(c) MC cost curve cuts the AC curve at the
minimum point of AC curve
(d) AC pulls up or down the MC Sp
316. When AC is at its minimum, then-
(a) AC >MC
(b) AC < MC
(c) AC = MC
(d) All the above
317. Per unit cost of a commodity is called-
(a) fixed cost
(b) variable cost
(c) average cost
(d) marginal cost
318. When MC curve cuts AC curve-
(a) AC = MC
(b) AC > MC
(c) AC < MC
(d) both AC and MC are falling
319. What happens to Average Cost when
MC > AC?
(a) AC will fall
(b) AC will rise
(c) AC will remain constant
(d) None of the above
320. Marginal cost includes-
(a) fixed cost and variable cost

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(b) only fixed cost
(c) only variable cost
(d) None of the above
321. If the marginal cost of production is less
than the average cost then-
(a) MC curve lies under the AC curve
(b) AC would be falling
(c) MC cost pulls down AC
(d) All the above
322. MC is greater than AC when production
is in a state of _____
(a) increasing returns
(b) diminishing returns
(c) constant returns
(d) None of the above
323. AC is greater than MC, so long as –
(a) AC is falling
(b) AC is rising
(c) AC is constant
(d) All the above
324. MC = AC when –
(a) AC is falling
(b) AC is rising
(c) AC tends to stabilize
(d) None of the above
325. The distance between AC and AVC
curves tends to _____ at higher level of output
(a) increase
(b) remain constant
(c) reduce
(d) None of the above
326. ATC and AVC curves tend to intersect at
some level of output
(a) Statement is Incorrect
(b) Statement of Correct
(c) Statement is Partially Correct
(d) None of the above
327. The difference between ATC and AVC:
(a) is constant
(b) is total fixed cost
(c) gets narrow as output falls
(d) is the average fixed cost
328. Can AC fall, when MC is rising?
(a) No
(b) Yes
(c) Can’t say
(d) None of the above
329. When MC < AVC, _____ with increase in
the output
(a) AVC rises
(b) AV C falls
(c) AVC remain constant
(d) AVC curve cut MC curve
330. When MC becomes equal to AC and
AVC, they _____
(a) begin to rise
(b) begin to fall
(c) become constant
(d) Any of the above
331. There will be productive efficiency when-
(a) MC = AC
(b) firm is producing at the minimum point of
Average Cost Curve
(c) MC curve cuts the AC curve
(d) All the above
332. Marginal Cost is _____
(a) Always less than the Average Cost
(b) Always more than the Average Cost
(c) Equal to the Average Cost at its minimum
point
(d) Never equal to Average Cost
333. The slope of the TVC or total cost curve
indicates the-
(a) marginal revenue
(b) average cost
(c) variable cost
(d) marginal cost
334. Falling average cost means-
(a) increasing returns
(b) diminishing returns
(c) constant returns
(d) negative returns
335. _____ costs are important in short run to
de¬termine optimum level of output
(a) Fixed
(b) Marginal
(c) Opportunity
(d) Sunk
336. Short run average costs eventually rise
because of _____
(a) rising overhead costs
(b) rising factor prices
(c) falling marginal and average productivity
(d) None of these
337. Decreasing average costs for a firm, as it
expands plant size and output-

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(a) results from decreasing returns to scale
(b) results usually from the effects of
increased mechanism and specialization
(c) results from increased complexity of rapid
expansion
(d) None of the above
338. MC curve passes through the minimum
point of _____
(a) AC curve
(b) TC curve
(c) AVC curve
(d) both ‘a’ and ‘c’
339. Which of the following statements about
the relationship between marginal cost and
average cost is correct? –
(a) When MC is falling AC is falling
(b) AC equals MC at MC’s lowest point
(c) When MC exceeds AC, AC must be rising
(d) When AC exceeds MC, MC must be rising
340. Salesmen’s commission is an example of
–
(a) Fixed cost
(b) Variable cost
(c) Semi-Variable cost Le. fixed over some
range and then increase
(d) Stair-Step cost
341. The Long Run Average Curve shows the
average cost of production when _____ in
supply
(a) all factors are fixed
(b) all factor are variable
(c) some factors are fixed while some are
variable
(d) one factor is fixed while all others are
variable
342. Which one of the following is called
planning curve?
(a) Long Run Average Cost Curve
(b) Short Run Average Cost Curve
(c) Average Variable Cost Curve
(d) Average Total Cost Curve
343. Falling portion Le. negatively sloped
portion of the long run average cost curve is
because of-
(a) economies of scale
(b) diseconomies of scale
(c) diminishing returns
(d) law of variable proportions
344. Each point on LAC curve is a point of
tangency with the corresponding-
(a) short run AC curves
(b) short run AVC curves
(c) short run MC curves
(d) none of the above
345. Which one of the following is also known
as PLANT CURVE?
(a) LAC curve
(b) SAC curve
(c) AVC curve
(d) ATC curve
346. The LAC curve helps the firm to make
choice about size of plant for producing a
particular output at _____
(a) Optimum Cost
(b) Minimum Cost
(c) Maximum Cost
(d) Nothing can be said
347. Which of the following is correct
regarding Long Run Average Cost curve?
(i) It shows least cost of producing each level
of output
(ii) LAC curve is envelope of SAC curves
(iii) LAC is U-shaped
(iv) LAC curve is U-shaped due to economies
and diseconomies
(a) (i) and (ii) only
(b) (ii) and (iii) only
(c) (i), (ii), (iii) and (iv)
(d) (iii) and (iv) only
348. When the long run average cost curve is
falling, it is tangent to _____
(a) the falling portion of SAC curve
(b) the rising portion of SAC curve
(c) the minimum point of SAC curve
(d) the minimum point of MC curve
349. When LAC curve is _____ it will be
tangent to rising portions of the SAC curves
(a) sloping downward
(b) sloping upwards
(c) constant
(d) none of the above
350. When the LAC curve slopes upward, the
firm is experiencing _____
(a) economies of scale
(b) external economies
(c) diseconomies
(d) none of these
351. Larger outputs can be economically
produced ie. at the lowest cost with the _____
(a) smaller plant

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(b) medium size plant
(c) bigger plant
(d) none of these
352. The LAC is –
(a) U-shaped
(b) Inverted U-shaped
(c) V-shaped
(d) S-shaped
353. In the long run, when a firm faces infinite
SAC curves, the LAC curve will be-
(a) perpendicular to each SAC curve
(b) connect the lowest point of each SAC
curve
(c) smooth curve, so as to be tangent to
each of the SAC curves
(d) all the above
354. The LAC curve envelopes many SAC
curves, it is therefore also called _____
(a) planning curve
(b) envelope curve
(c) family curve
(d) none of these
355. The LAC curve is flattened U-shaped
because-
(a) some factors are fixed
(b) some factors are variable
(c) of change in technology
(d) technology remains constant
356. Modern firms face _____ shaped LAC
curves
(a) L
(b) U
(c) S
(d) C
357. L-shaped LAC curve over a range shows
that all sizes of plant have the _____
(a) different minimum cost of production
(b) falling cost of production
(c) same minimum cost of production
(d) rising cost of production
358. In the short period the firm can control
only the _____ cost and not the _____ Cost
and therefore must recover at least _____
Cost
(a) fixed ; variable ; fixed
(b) variable ; fixed ; variable
(c) average ; marginal; average
(d) accounting ; opportunity ; accounting
359. In short run the producer can control
only _____ cost
(a) fixed
(b) semi-fixed
(c) variable
(d) stair step
360. In the long period _____ costs are under
the control of the producer
(a) fixed
(b) variable
(c) all
(d) none
361. What does the shaded area show in the
figure below?

(a) TFC
(b) TVC
(c) TC
(d) ATC
362. Consider the figure and answer which
region represents diseconomies

(a) Region ‘c’ to ‘d’
(b) Region ‘a’ to ‘b’
(c) Region ‘d’ to ‘e’
(d) Region ‘b’ to ‘d’

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Consider the following diagram to answer
questions 363 to 369.

363. In the above diagram curve numbers 1,
2 and 3 are _____ respectively
(a) AVC ; AFC ; AC
(b) AFC ;AVC ; AC
(c) AC ; AFC ; AVC
(d) AC ; AVC ; AFC
364. In the above diagram at OK level of
output, the average cost equals-
(a) KN
(b) KM
(c) KL
(d) MN
365. In the diagram above at OK level of
output, KL denotes-
(a) AFC
(b) MC
(c) AVC
(d) AC
366. In the diagram above at OK level of
output, KM denotes-
(a) AC
(b) AVC
(c) MC
(d) AFC
367. In the diagram above at OK level of
output, the vertical distance shaded
between LN denotes-
(a) AFC
(b) AVC
(c) AC
(d) None of these
368. In the above diagram, on the right side
curve 3 becomes closer to curve 2 means-
(i) component of AFC shrinks
(ii) component of AFC increases
(iii) component of AVC increases
(iv) component of AVC shrinks
(a) i and iii
(b) ii and iv
(c) ii and iii
(d) none of the above
369. In the above diagram on the right side
curve 1 gets away from curve 3 means-
(a) component of AFC increases but
component of AVC shrinks
(b) component of both AFC and AVC
increases
(c) component of AFC shrinks but
component of AVC increases
(d) None of the above
370. Marginal Cost reflects change in either
_____ or _____
(a) total cost; total variable cost
(b) total cost; average variable cost
(c) fixed cost; total variable cost
(d) none of the above
Use the following data to answer questions
371 to 376 :
output 0 1 2 3 4 5
TC 90 135 174 216 264 321
371. The total variable cost of the 3rd unit is-
(a) 216
(b) 84
(c) 126
(d) 174
372. The marginal cost of the 2nd unit is-
(a) 0
(b) 45
(c) 39
(d) 42
373. The average cost of producing the 4th
unit is-
(a) 66
(b) 48
(c) 67
(d) 49
374. The total fixed cost at the 3rd unit of
output is-
(a) 180
(b) 42
(c) 66
(d) 90
375. The average fixed cost at the 4th unit of
output , is-
(a) 42

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(b) 32
(c) 22.5
(d) 20
376. The average variable cost at the 3rd unit
of output is-
(a) 42
(b) 32
(c) 22
(d) none of these
Use the following data to answer questions
377 to 379:
Suppose that the Total Fixed Cost is Rs. 120
output 1 2 3 4 5
ATC 240 160 140 160 180
377. The total variable cost of the 3rd unit is-
(d) 120
(b) 200
(c) 300
(d) 520
378. The marginal cost of the 2nd unit of
output is-
(a) 120
(b) 80
(c) 100
(d) 220
379. The total cost of 4th units of output is-
(a) 320
(b) 420
(c) 640
(d) 900
Use the following data to answer questions
380 to 382:
Fixed cost of a firm is Rs. 30.

Output 1 2 3 4 5
TVC 20 38 60 86 112
380. Total Cost of 4th unit is-
(d) 68
(b) 116
(c) 50
(d) 90
381. The Average Cost of 2nd unit is-
(a) 50
(b) 34
(c) 29
(d) None of the above
382. The Marginal Cost of 3rd unit is-
(a) 18
(b) 22
(c) -26
(d) 50
Use the following data to answer questions
383 to 386:
output 0 1 2 3 4 5
TC 40 120 170 180 210 260
383. The Total Fixed Cost of the 5th unit is-
(a) 80
(b) 40
(c) 120
(d) 240
384. The Average Fixed Cost of 2nd unit is-
(a) 40
(b) 20
(c) 10
(d) 05
385. The Average Variable Cost of 3rd unit is-
(a) 65
(b) 46.67
(c) 42.5
(d) 44
386. The Average Total Cost of 2nd unit is-
(a) 120
(b) 85
(c) 52.5
(d) 52
387. Table for the production of a firm.

Output
(units)
A (Rs.) B(Rs.) C (Rs.)
100 1000 500 500
200 2000 500 1500
300 3000 500 2500
400 4800 500 4300
500 5700 500 5200
One the basis of the above table match the
following
(i) Prime Cost
(ii) Direct Cost
(iii) Fixed Cost
(iv) Variable Cost
(v) Total Cost
(a) (A, i) (B, ii) (C, iii)
(&) (A, ii) (B, iii) (C, iv)

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(c) (A, iii) (B, iii) (C, iv)
(d) (A, v) (B, iii) (C, iv)
388. Considering the following information of
firm’s production department for a week, the
TVC, AVC and ATC would be-

(a) Rs. 11,9000 ; Rs. 119 and Rs. 123
respectively
(b) Rs. 11,600 ; Rs. 116 and Rs. 123
respectively
(c) Rs. 11,900 ; Rs. 119 and Rs. 119
respectively
(d) None of these
389. The average cost is Rs. 40 and it is
minimum when 8 units are produced. The
marginal cost of producing 4 unit is-
(a) 40
(b) 160
(c) 48
(d) 10
390. If the marginal cost of producing 1 unit
of a commodity is Rs. 15 and that of
producing 2 units is 10, which of the following
is correct?
(a) Total cost = Rs. 25
(b) Variable cost = Rs. 25
(c) Average cost = Rs. 25
(d) None of the above
391. The total cost at 10 units of output is Rs.
55. The fixed cost is Rs. 5. The average
variable cost at 10 units of output is-
(a) Rs. 25
(b) Rs. 6
(c) Rs. 5
(d) Rs. 1
392. The total cost of producing 5 units of a
commodity is ? 20 and that of producing 4
units is? 15, what will be the marginal cost?
(a) Rs. 2.5
(b) Rs. 5
(c) Rs. 7.5
(d) Rs. 10
393. A firm produces 100 units of a
commodity. Actual money expenditure
incurred on producing this commodity is Rs.
1500. The owner supplies inputs worth Rs. 500
for which he does not get any payment. The
economic cost turned out to be Rs. 2,100.
The difference is-
(a) Normal Profit
(b) Loss
(c) Abnormal Profit
(d) None of these
394. What would be the economic cost
considering the following-
Purchase of raw materials Rs. 200
Payment of wages and salaries Rs. 500
Payment of rent Rs. 50
Estimated value of owner’s services Rs. 300
Expected minimum profit Rs. 40
Estimated super normal profit Rs. 240
(a) 1000
(b) 1,180
(c) 1,090
(d) 2000
395. The total cost curve makes an intercept
of Rs. 50 on y-axis, Calculate total fixed cost
and total variable cost of 3rd unit of output :
Output 1 2 3 4 5
TC 65 90 120 160 220

(a) 50 ; 15
(b) 40 ; 50
(c) 50 ; 70
(d) 110 ; 50
396. A firm is producing 20 units. At this level
of output, ATC and AVC are equal to Rs. 40
and Rs. 37 respectively. What is the total fixed
cost of the firm?
(a) Rs. 3
(b) Rs. 60
(c) Rs. 40
(d) Rs. 20
397. The total cost of producing 9 units of
output is Rs. 85. If the ATC of producing 10
units is Rs. 10, then what will be the marginal
cost of producing the 10th unit?
(a) Rs. 10
(b) Rs. 05
(c) Rs. 15
(d) Rs. 20
398. The AC of producing 5 units is Rs. 6 and
AC of producing 6 units is Rs. 5. What is the
MC of the 6th unit?
(a) Rs. 0

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(b) Rs. 15
(c) Rs. 20
(d) Rs. 30
399. The TC of a firm increased by Rs. 450,
when production increased from 12 units to
14 units. What is the MC of the firm?
(a) Rs. 150
(b) Rs. 175
(c) Rs. 200
(d) Rs. 225
400. Find the AC and AVC if entire output is
sold at Rs. 60 per unit from the following :
Wage Bill Rs. 20,000
Raw-material Bill Rs. 60,000
Interest Rs. 6,000
Fuel consumption Rs. 10,000
Rent Rs. 4,000
(a) Rs. 50 ; Rs. 50
(b) Rs. 50 ; Rs. 45
(c) Rs. 45 ; Rs. 45
(d) Rs. 45 ; Rs. 50

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ANSWER- PRACTICE
PAPER:1
ANSWER- PRACTICE
PAPER:2
ANSWER- PRACTICE
PAPER:3
ANSWER- PRACTICE
PAPER:4
Q.
No.
Ans Q.
No.
Ans Q.
No.
Ans Q.
No.
Ans Q.
No.
Ans Q.
No.
Ans Q.
No.
Ans Q.
No.
Ans
1 C 26 C 51 A 76 A 101 B 126 B 151 A 176 D
2 C 27 C 52 D 77 B 102 C 127 D 152 D 177 B
3 C 28 D 53 C 78 A 103 B 128 B 153 A 178 A
4 B 29 D 54 A 79 D 104 B 129 C 154 C 179 D
5 B 30 B 55 B 80 C 105 A 130 A 155 B 180 B
6 D 31 B 56 B 81 D 106 C 131 B 156 D 181 C
7 C 32 B 57 D 82 A 107 B 132 A 157 B 182 A
8 B 33 A 58 D 83 B 108 D 133 D 158 A 183 B
9 D 34 A 59 A 84 A 109 A 134 C 159 D 184 C
10 D 35 B 60 B 85 D 110 D 135 B 160 B 185 D
11 C 36 D 61 B 86 C 111 C 136 A 161 D 186 B
12 A 37 D 62 A 87 B 112 B 137 D 162 C 187 B
13 B 38 D 63 B 88 A 113 C 138 C 163 D 188 C
14 C 39 B 64 A 89 B 114 A 139 B 164 A 189 A
15 B 40 C 65 C 90 A 115 C 140 D 165 B 190 C
16 C 41 D 66 C 91 A 116 C 141 A 166 C 191 D
17 B 42 D 67 C 92 B 117 A 142 B 167 C 192 B
18 C 43 B 68 B 93 D 118 D 143 C 168 D 193 B
19 A 44 C 69 C 94 D 119 C 144 B 169 A 194 B
20 A 45 C 70 C 95 A 120 A 145 B 170 D 195 B
21 C 46 A 71 C 96 A 121 D 146 C 171 A 196 C
22 D 47 C 72 D 97 B 122 C 147 A 172 C 197 C
23 C 48 A 73 C 98 A 123 C 148 B 173 B 198 C
24 D 49 B 74 A 99 D 124 D 149 D 174 C 199 A
25 B 50 C 75 C 100 C 125 A 150 C 175 A 200 D











ANSWER- PRACTICE
PAPER:5
ANSWER- PRACTICE
PAPER:6
ANSWER- PRACTICE
PAPER:7
ANSWER- PRACTICE
PAPER:8

85. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 85

Q.
No.
Ans Q.
No.
Ans Q.
No.
Ans Q.
No.
Ans Q.
No.
Ans Q.
No.
Ans Q.
No.
Ans Q.
No.
Ans
201 B 226 D 251 C 276 A 301 C 326 A 351 C 376 A
202 A 227 C 252 D 277 C 302 B 327 D 352 A 377 C
203 D 228 D 253 C 278 B 303 D 328 B 353 C 378 B
204 B 229 A 254 B 279 C 304 A 329 B 354 B 379 C
205 D 230 C 255 A 280 B 305 C 330 C 355 D 380 B
206 B 231 A 256 D 281 C 306 A 331 D 356 A 381 B
207 D 232 A 257 B 282 B 307 B 332 C 357 C 382 B
208 C 233 B 258 A 283 D 308 C 333 D 358 B 383 B
209 D 234 C 259 C 284 A 309 A 334 A 359 C 384 B
210 B 235 D 260 A 285 B 310 D 335 B 360 C 385 B
211 A 236 C 261 B 286 C 311 B 336 C 361 B 386 B
212 C 237 D 262 A 287 C 312 C 337 B 362 C 387 D
213 D 238 D 263 C 288 D 313 C 338 D 363 B 388 A
214 C 239 D 264 A 289 A 314 D 339 C 364 A 389 A
215 C 240 B 265 A 290 B 315 C 340 C 365 C 390 B
216 B 241 C 266 D 291 D 316 C 341 B 366 D 391 C
217 D 242 A 267 B 292 D 317 C 342 A 367 A 392 B
218 C 243 B 268 A 293 D 318 A 343 A 368 A 393 A
219 D 244 C 269 B 294 B 319 B 344 A 369 C 394 C
220 D 245 A 270 B 295 A 320 C 345 B 370 A 395 C
221 C 246 C 271 C 296 C 321 D 346 B 371 C 396 B
222 D 247 D 272 A 297 B 322 B 347 C 372 C 397 C
223 A 248 C 273 C 298 B 323 A 348 A 373 A 398 A
224 A 249 D 274 C 299 C 324 C 349 B 374 D 399 D
225 B 250 D 275 B 300 A 325 C 350 C 375 C 400 B













UNIT – 4
. Revenue Analysis and Pricing Policies: Introduction, Revenue: Meaning and Types,
Relationship between Revenues and Price Elasticity of Demand, Pricing Policies, Objectives of Pricing
Policies, Cost plus pricing. Marginal cost pricing. Cyclical pricing. Penetration Pricing. Price
Leadership, Price Skimming. Transfer pricing. Price Determination under Perfect Competition-
Introduction, Market and Market Structure, Perfect Competition, Price-Output Determination
under Perfect Competition, Short-run Industry Equilibrium under Perfect Competition, Short-run
Firm Equilibrium under Perfect Competition, Long-run Industry Equilibrium under Perfect

86. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 86
















1. In economics the term market refers to –
(i) a particular place
(ii) a commodity
(iii) buyers and sellers
(iv) bargaining for a price
(a) only i
(b) only ii
(c) ii & iii
(d) ii, iii and iv
ANSWER: D
2. Price depends on –
(a) utility and scarcity
(b) Cost of production
(c) transferability
(d) all the above
ANSWER:D
3. The basic behavioural principle which
apply to all market conditions –
(a) A firm should produce only if its TR \ge
TVC
(b) A firm should produce at a level where its
MC = MR
(c) MC curve cuts the MR curve from below.
(d) All the above
ANSWER:D
4. Total revenue can be found out by –

ANSWER:A
5. When marginal revenue is zero, total
revenue will be –
(a) lowest
(b) highest
(c) negative
(d) zero
ANSWER:B
6. If MR < 0, then the TR will be –
(a) rising
(b) highest
(c) falling
(d) zero
ANSWER:C
7. The change in the total revenue that results
from a one unit change in sales is –
(a) Total Revenue
(b) Average Revenue
(c) Marginal Revenue
(d) both c and d
ANSWER:C
8. The revenue per unit of called as – one
commodity sold is
(a) Total Revenue
(b) Marginal Revenue

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(c) Average Revenue
(d) None of the above
ANSWER:C
9. AR can be found out by the formula –

ANSWER:D
10. Which of the following is not correct –

ANSWER:B
11. Which concept of revenue is called
price?
(a) TR
(b) AR
(c) MR
(d) None of these
ANSWER:B
12. If a producer sells 4 units of a good at Rs.
10 per unit and 5 units at Rs. 8 per unit,
marginal revenue would be –
(a) 0
(b) 1
(c) 2
(d) 3
ANSWER:A
13. P x Q / Q represents:-

(i) Total Revenue
(ii) Marginal Revenue
(iii) Average Revenue
(iv) Price
(a) i & iii
(b) ii & iv
(c) ii & iii
(d) iii & iv
ANSWER:D
14. Which of the following statement is
incorrect –
(a) Demand and supply determine price of a
commodity
(b) At equilibrium price quantity demanded
equals quantity supplied.
(c) Demand factor influences price more.
(d) Equilibrium price can change.
Use the following figure to answer questions
15-16

ANSWER:C
15. In the figure above at the equilibrium
point E –
(a) demand is more than supply
(b) supply is more than demand
(c) demand and supply are equal
(d) none of the above
ANSWER:C
16. In the above figure equilibrium point,
quantity and price are –
(a) E , OQ , OP
(b) E , ES , EP
(c) ES , ED, OQ
(d) E , EP , ED
ANSWER:A
17. When demand and supply increase
equally, then –
(a) both equilibrium price and equilibrium
quantity remain unchanged.
(b) both equilibrium price and equilibrium
quantity increase
(c) equilibrium price remains unchanged but
equilibrium quantity increases
(d) equilibrium price changes but equilibrium
quantity remains unchanged.
ANSWER:C
18. If increase in demand is more than
increase in supply, then –
(a) equilibrium price will fall but equilibrium

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quantity will increase
(b) equilibrium price will increase but
equilibrium quantity will decrease
(c) both equilibrium price and equilibrium
quantity will increase
(d) both equilibrium price and equilibrium
quantity will decrease
ANSWER:C
19. When demand increases equilibrium price
will increase only if –
(a) supply also increases
(b) supply also decreases
(c) supply remains same
(d) if the elasticity remains the same
ANSWER:C
20. The equilibrium price remains constant
only if demand and supply
(a) increase unequally
(b) decrease unequally
(c) increase equally
(d) none of the above
ANSWER:C
21. The price will decrease if demand remains
same and –
(a) supply increases
(b) supply decreases
(c) supply is more than the previous level
(d) none of these
ANSWER:A
22. In the short period equilibrium price is –
(i) higher than long run price
(ii) higher than market price
(iii) lower than market price
(iv) lower than long run price
(a) i & ii
(b) ii & iii
(c) iii & iv
(d) i & iii
ANSWER:D
23. The inter-action of market demand and
supply curves determines the –
(a) equilibrium price
(b) reserve price
(c) both a & b
(d) none of these
ANSWER:A
24. Uniform price for homogeneous product
at any one time is the essential condition of –
(a) monopolistic competition
(b) oligopoly
(c) perfect competition
(d) duopoly
ANSWER:C
25. For maximizing profit, the condition is –
(a) AR = AC
(b) MR = AR
(c) MR = MC
(d) MC = AC
ANSWER:C
26. MC = MR = AR means equilibrium position
of a firm –
(a) in the long period
(b) in the short period under imperfect com-
petition
(c) in the short period under perfect
competition
(d) under perfect competition.
ANSWER:C
27. Under perfect competition –
(a) MC = Price
(b) MC > Price
(c) MC < Price
(d) none of these
ANSWER:A
28. All but one are correct about perfect
competition –
(a) Large number of buyers and sellers
(b) Homogeneous product
(c) Differentiated product
(d) Uniform price
ANSWER:C
29. An increase in demand for a commodity
causes –
(a) an increase in equilibrium price
(b) an increase in equilibrium quantity
(c) both a & b
(d) none of these
ANSWER:A

89. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 89

30. Which of the following is/are the features
of perfect competition ?
(i) Large number of buyers and sellers
(ii) Identical product
(iii) Free entry and exit
(iv) No transportation cost
(a) i, ii and iii
(b) ii, iii and iv
(c) i, ii, and iv
(d) i, ii, iii and iv
ANSWER:D
31. The demand curve of a commodity
faced by a competitive firm is –
(a) very elastic
(b) perfectly inelastic
(c) very inelastic
(d) perfectly elastic
ANSWER:D
32. In the short period, a perfectly
competitive firm earns –
(a) normal profit
(b) super normal profit
(c) can incur losses
(d) all the above
ANSWER:D
The questions 33 to 35 are based on the
above diagram

33. Figure (A) shows the equilibrium position –
(a) of an industry
(b) of a firm
(c) of a perfectly competitive industry
(d) of a perfectly competitive firm
ANSWER:C
34. Figure (B) shows the equilibrium –
(a) of a firm
(b) of a long run perfectly competitive firm
(c) of a short run competitive firm
(d) none of these
ANSWER:B
35. In figure (B) L, M and N represents –
(a) SMC, SAC and STC
(b) LMC, SAC and AR = AC
(c) SMC, LAC and AR = AC
(d) LMC, LAC and AR = MR
ANSWER:D
36. The following figure shows that –

(a) a firm is a price maker
(b) a firm is price taker
(c) an industry is price taker
(d) none of these
ANSWER:B
37. The figure above shows that the firm
belong to –
(a) Imperfect competitive market
(b) monopoly
(c) oligopoly
(d) Perfectly competitive market
ANSWER:D
38. The firm’s short run supply curve is its
marginal cost curve above its average
variable cost curve is correct about –
(a) perfect competition
(b) oligopoly
(c) monopoly
(d) duopoly
ANSWER:A
39. Under perfect competition the price of
commodity
(a) can be controlled by a firm
(b) cannot be controlled by a firm
(c) controlled up to some extent by a firm
(d) none of the above

90. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 90

ANSWER:B
40. AR and MR curve coincide in –
(a) Monopoly
(b) Monopolistic Competition
(c) Perfect Competition
(d) Oligopoly
ANSWER:C
41. Consider the following figure-

(a) super normal profit
(b) normal profit
(c) loss
(d) shut down point
ANSWER:A
42. Perfectly elastic demand curve implies
that –
(a) the firm has no control over price
(b) the firm can sell any quantity at the ruling
price
(c) the firm is price taker and output adjuster
at ruling price
(d) all a, b and c.
ANSWER:D
43. Under perfect competition, if the AR
curve lies below the AC curve, the firm would
–
(a) make only normal profit
(b) incur losses
(c) make super normal profit
(d) firm cannot determine profit
ANSWER:B
44. Short run supply curve of a perfectly
competitive firm is represented by –
(a) short run MC curve
(b) short run AC curve
(c) the part of the MC curve that lies above
AVC
(d) none of these
ANSWER:C
45. Firms are of optimum size in the long
period in case of –
(a) Monopoly
(b) Perfect competition
(c) Monopolistic competition
(d) All the above
ANSWER:B
46. The condition of the long run equilibrium
for a competitive firm is –
(a) MC = MR = AR
(b) MC = AC = AR
(c) MC = MR = AC
(d) MC = MR = AR = AC
ANSWER:D
47. In the long run, firms only earn normal
profits is a feature of –
(a) perfect competition
(b) monopoly
(c) both a & b
(d) none of these
ANSWER:A
48. Odd one out of the following :
(a) Firms are of optimum size and earn
normal s profits only in long run.
(b) Firms sell identical product at uniform
price
(c) Firms are not of optimum size and earn
super normal profits in long run.
(d) Firms are free to move in or out of the
industry.
ANSWER:C
49. The industry’s demand curve and the
average revenue curve are same in case of –
(a) perfect competition
(b) monopoly
(c) oligopoly
(d) none of the above
ANSWER:B
50. All the characteristics of monopolistic
competition except –
(a) Large number of buyers and sellers
(b) Freedom of entry and exit
(c) Excess production capacity in long run
(d) Full control over price of commodity

91. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 91

ANSWER:D

51. There is no difference between firm and
industry in case of –
(a) pure monopoly
(b) pure oligopoly
(c) duopoly
(d) perfect competition
ANSWER:A
52. Find the odd out –
(a) Monopoly may be the result of control
over raw materials
(b) Monopoly may be the result of business
combines
(c) Monopoly may be the result of patents,
copyrights, etc.
(d) Monopoly may be the result of control
over demand of commodity
ANSWER:D
53. The demand curve of consumers for
product produced by firm is indicated by –
(a) the average cost curve of a firm
(b) the marginal cost curve of a firm
(c) the average revenue curve of a firm
(d) the average revenue curve of an industry.
ANSWER:C
54. If in the long run super normal profits can
be made by a firm, it means the firm belongs
to
(a) perfect competition market
(b) monopolistic competition market
(c) monopoly market
(d) oligopoly market
ANSWER:C
55. If e >1 on average revenue curve –
(a) MR is positive and TR is rising
(b) MR is negative and TR is falling
(c) MR is zero and TR is maximum
(d) none of these
ANSWER:A
56. When MR is zero the elasticity of demand
on AR curve is –
(a) e < 1 and TR is maximum
(b) e = 1 and TR is maximum
(c) e > 1 and TR is rising
(d) none of these
ANSWER:B
57. Entry to the market for new firms is
blocked in –
(a) perfect competition
(b) monopoly
(c) oligopoly
(d) monopolistic competition
ANSWER:B
58. When the firm charges different prices to
different customers for the same commodity,
it is engaged in –
(a) price determination
(b) price rigidity
(c) price discrimination
(d) none of these
ANSWER:C
59. Lux Supreme, Rexona, Dove Soap, Pears
Soap, Liril Soap, etc. indicates –
(a) perfectly competitive market
(b) monopoly market
(c) monopolistic competitive market
(d) duopoly market
ANSWER:C
60. If price and marginal revenue are same
then the demand curve must be –
(a) perfectly inelastic and vertical
(b) highly elastic and downward sloping
(c) perfectly elastic and horizontal
(d) highly inelastic and downward sloping
ANSWER:C
61. Perfectly elastic demand curve signifies
that –
(a) the firm has no control over price of
commodity
(b) the firm has to sell any amount of
commodity at prevailing price
(c) the firms average revenue and marginal
revenue coincide
(d) all the above
ANSWER:D
62. If under perfect competition, the demand
curve lies above the average cost curve, the

92. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 92

firm would –
(a) make normal profits
(b) incur losses
(c) make super normal profits
(d) profit is indeterminate
ANSWER:C
63. If a monopoly firm is charging price Rs. 20
per unit and elasticity of demand is 5, then,
MR will be –
(a) Rs. 10
(b) Rs. 12
(c) Rs. 14
(d) Rs. 16
ANSWER:D
64. Monopoly price is the function of –
(a) MC of production
(b) price elasticity of demand
(c) neither (a) nor (b)
(d) both (a) and (b)
ANSWER:D
65. Railways is an example of –
(a) perfect competition
(b) monopoly
(c) oligopoly
(d) monopolistic competition
ANSWER:B
66. Highly elastic negatively sloped demand
curve is related to –
(a) monopoly
(b) monopolistic competition
(c) perfect competition
(d) both (a) and (b)
ANSWER:B
67. The cross elasticity of demand for
monopolist’s product is –
(a) zero
(b) less than zero
(c) infinite
(d) unity
ANSWER:A
68. A market situation in which there are only
few firms producing differentiated product
which are close substitutes is –
(a) monopolistic competition
(b) oligopoly
(c) duopoly
(d) perfect competition
ANSWER:B
69. The cross elasticity of demand for the
product of a firm under perfect competition
is –
(a) zero
(b) less than zero
(c) infinite
(d) unity
ANSWER:C
70. Demand curve of a firm is indeterminate
in case of –
(a) monopoly
(b) oligopoly
(c) duopoly
(d) none of these
ANSWER:B
71. Under monopolistic competition the cross
elasticity of demand for the product of a
single firm is –
(a) infinite
(b) highly elastic
(c) highly inelastic
(d) zero
ANSWER:B
72. At every level of output AR = MR in case
of –
(a) perfect competition
(b) monopoly
(c) oligopoly
(d) all the above
ANSWER:A
73. Kinked demand curve is related to –
(a) monopoly
(b) pure competition
(c) oligopoly
(d) none of these
ANSWER:C
74. A single movie theatre in a small town or
city means –
(a) perfect competition
(b) monopoly

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(c) monopolistic competition
(d) both (a) and (b)
ANSWER:B
75. According to kinked demand curve
theory, the upper segment of the demand
curve is –
(a) highly elastic (b) highly inelastic
(c) unitary elastic (d) perfectly inelastic
ANSWER: A
76. A firm under perfectly competitive market
wants to double its sales. The firm would –
(a) lower the price of commodity
(b) improve the quality of commodity
(c) offer double the quantity for sale at ruling
price
(d) advertise the product aggressively
ANSWER:C
77. For maximization of profits, MR = MC is the
first order condition –
(a) only under monopoly
(b) only under perfect competition
(c) both under monopoly as well as perfect
competition
(d) in any type of market
ANSWER:D
78. Which of the following statements are
correct with regard to firm’s equilibrium –
(i) MR = MC
(ii) MC curve cuts the MR curve from below
(iii) TR = TC
(iv) MR = AR
(a) i & ii
(b) ii & iii
(c) iii & iv
(d) none of these
ANSWER:A
79. A firm under monopolistic competition is
in long run equilibrium –
(a) at the minimum point of the long run AC
curve
(b) at the falling segment of the long run AC
curve
(c) at the rising segment of the long run AC
curve
(d) when Price = MC
ANSWER:B
80. The AR curve is tangent to the minimum
point of AC curve in the long run, if there is –
(a) perfect competition
(b) oligopoly
(c) monopoly
(d) monopolistic competition
ANSWER:A
81. In the long run, one firm operates at the
optimum level while other operates at sub-
optimum level. Such firms belong to –
(a) monopoly and perfect competition
(b) perfect competition and monopolistic
competition
(c) monopolistic competition and oligopoly
(d) oligopoly and monopoly
ANSWER:B
82. Which one of the following gives the
correct relationship between MR, AR and
price elasticity

ANSWER:B
83. Marginal revenue will be negative if
elasticity of demand is –
(a) equal to zero
(b) less than zero
(c) greater than one
(d) less than one
ANSWER:D
84. The phenomena of excess production
capacity is associated with –
(a) Perfect competition
(b) Monopolistic competition
(c) Monopoly
(d) Oligopoly
ANSWER:B
85.
Qty sold TR (Rs.)
5 300

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6 330
The AR and MR for 6 units would be –
(a) 55 and 30 respectively
(b) 30 and 55 respectively
(c) 60 and 30 respectively
(d) 30 and 60 respectively
ANSWER:A
Use the following data to answer Qs. 86 – 87

Output
(units)
1 2 3
AR
(Rs.)
10 8 6
86. The total revenue of the of 2 units would
be –
(a) Rs. 10
(b) Rs. 16
(c) Rs. 18
(d) can not be determined
ANSWER:B
87. The marginal revenue of 3rd unit would
be –
(a) Rs. 10
(b) Rs. 6
(c) Rs. 4
(d) Rs. 2
ANSWER:D
88. Suppose the price of a commodity
determined in a competitive market is Rs. 5,
then the marginal revenue of the 4th unit sold
would be –
(a) Rs. 20
(b) Rs. 15
(c) Rs. 10
(d) Rs. 5
ANSWER:D
89. A monopoly firm faces a downward
sloping demand curve because –
(a) it has an inelastic demand
(b) it sells large quantities to few buyers
(c) it is same as the industry
(d) consumers prefer its product
ANSWER:C
90. At the quantity where MR equals MC, the
AFC is Rs. 7; AVC is Rs. 23 and the price is Rs.
30, hence, the firm –
(a) should continue production in short run
(b) should continue production in long run
(c) should shut down
(d) none of these
ANSWER:A
91. A firm has to take decision whether to
produce 15th unit of output but finds its
marginal cost of 15th unit to be Rs. 25 and
marginal revenue of 15th unit to be Rs. 18
hence firm –
(a) should produce 15th unit
(b) should cut down its output level
(c) should further expand production beyond
15th unit
(d) can not determine output level
ANSWER:B
Use the following data for Qs. 92-94
A perfectly competitive firm has the following
cost schedule

92. if the market price is Rs. 13, to maximize
profits the firm should produce –
(a) 8 units
(b) 7 units
(c) 6 units
(d) 9 units
ANSWER:D
93. At the market price of ? would be – 6, the
maximum profits
(a) Rs. 5
(b) Rs. 10
(c) Rs. 15
(d) Rs. (-) 24
ANSWER:D
94. Suppose the price falls choose to
produce – to Rs. 7, the firm would
(a) 5 units
(b) 6 units
(c) 7 units
(d) 8 units

95. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 95

ANSWER:A
95. A competitive firms MC curve and AVC
curve are given to, show which region of the
curves show the firm’s supply curve in the
short run.


(a) region HE
(b) region EG
(c) region EF
(d) region IE
ANSWER:C
96. A firm making zero economic profit –
(a) earns super normal profits
(b) incur losses
(c) earns a normal profits
(d) profit or loss is indeterminate
ANSWER:C
97. If average variable cost exceeds the
market price, the firm should produce –
(a) zero output with fixed costs
(b) zero output without fixed cost
(c) less output without fixed costs
(d) zero output with or without fixed cost
ANSWER:D
98. An individual firm is only output adjuster at
ruling market price in –
(a) monopoly
(b) oligopoly
(c) perfect competition
(d) monopolistic competition .
ANSWER:C
99. There are few firms selling homogeneous
or differentiated products in –
(a) Perfect competition
(b) Oligopoly
(c) Monopolistic competition
(d) None of these
ANSWER:B
100. Kinked demand curve shows-
(a) Fall in price
(b) rise in price
(c) Stability in price
(d) both (a) and (b)
ANSWER:C
101. In the above figure, the demand curves
facing a seller under perfect competition,
monopolistic ‘ competition and Monopoly
are-
(a) AR2 ; AR1, AR
(b) AR1, AR2, AR
(c) AR, AR2, AR1
(d) AR, AR1, AR2
ANSWER: D
102. The demand curve is undefined under
_____ market structure.
(a) oligopoly
(b) monopoly
(c) perfect competition
(d) monopolistic competition
ANSWER:A
103. When demand is elastic, MR is _____
(a) negative
(b) positive
(c) zero
(d) one
ANSWER:B
104. The market that induces formation of
cartels is _____
(a) Perfect Competition
(b) Monopoly
(c) Oligopoly
(d) None of these
ANSWER:C
105. Match the following ;

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(a) A-2 ; B-3 ; C-1 ; D-4
(b) A-4 ; B-1 ; C-2 ; D-3
(c) A-1 ; B-2 ; C-3 ; D-4
(d) A-2 ; B-1 ; C-4 ; D-3
ANSWER:B
106. A bilateral monopoly is one which-
(a) there are two products with one producer
(b) there are international monopoly
agreements
(c) monopoly is shared between the people
(d) a monopolist is facing a monopsonist
ANSWER:D
107. The characteristic of monopolistic
competition which is compatible with
monopoly is-
(a) One seller and large number of buyers
(b) Full control over price
(c) Freedom of entry and exit
(d) Demand Curve slopes downward
ANSWER:D
108. If the demand curve of a firm is a
horizontal straight line-
(a) a firm can sell any quantity at prevailing
price
(b) a firm can sell only specific quantity at
prevailing price
(c) all firms can sell equal amount of a
commodity
(d) firms can differentiate their products
ANSWER:A
109. When demand curve is inelastic ; MR is-
(a) negative
(b) positive
(c) zero
(d) one
ANSWER:A
110. A rational producer will always operate
on the _____ portion of the demand curve
(a) elastic
(b) inelastic
(c) unitary elastic
(d) perfectly inelastic
ANSWER:A
111. Firms have chronic excess production
capacity in _____ market
(a) duopoly
(b) perfect competition
(c) monopolistic competition
(d) oligopoly
ANSWER:C
112. The theory of monopolistic competition is
developed by-
(a) H.E. Chamberlin
(b) Mrs. Joan Robinson
(c) Dr. Marshall
(d) Nicholoas Kaldor
ANSWER:A
113. The point where P = AC is called –
(a) profit earning point
(b) loss making point
(c) breakeven point
(d) shut down point
ANSWER:C
114. TR is a straight positively sloping line from
origin is under-
(a) perfect competition
(b) monopoly
(c) duopoly
(d) oligopoly
ANSWER:A
115. If a monopolist resorts to price
discrimination, price will be higher in the
market where demand is-
(a) unitary elastic
(b) elastic
(c) inelastic
(d) none of these
ANSWER:C
116. Under collusive oligopoly, price is often
decided by-
(a) the industry
(b) the firm
(c) price leader
(d) none of these
ANSWER: C

97. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 97

117.

In the figure above, If OP is price, then ACO
represents-
(a) TC
(b) TR
(c) TR at OP price
(d) TR at OY price
ANSWER:C
118. Slope of firm’s demand curve = ∞ under
perfect competition means demand curve
is_____
(a) horizontal
(b) vertical
(c) positive
(d) negative
ANSWER:A
119. Price exceeds MC under monopoly, but
not under perfect competition because-
(a) in perfect competition AR = MR
(b) in perfect competition AR = MC
(c) in monopoly AR > MR
(d) all the above
ANSWER:D
120. In the long run, a monopolist produces
_____ level of output and charge a _____
price than a firm under perfect competition
market
(a) lower ; higher
(b) lower; lower
(c) higher ; lower
(d) higher ; higher
ANSWER:A
121. TR minus total explicit cost is called
(a) profit
(b) economic profit
(c) supernormal profit
(d) accounting profit
ANSWER:D
122. Under perfect competition when price
line (AR) passes through minimum point of
AVC curve is called _____
(a) minimum losses point
(b) shut down point
(c) breakeven point
(d) profit point
ANSWER:B
123. At the shut down point, losses of a firm
under perfect competition are equal to-
(a) AVC
(b) TFC
(c) AC
(d) MC
ANSWER:B
124. In the long run under monopolistic
competition, profit maximizing profit is _____
(a) less than least cost output
(b) more than least cost output
(c) equal to least cost output
(d) none of the above
ANSWER:A
125. “Purchase only made-in-India jadi-booti
toothpaste” will impact the different of
market more towards
(a) monopoly
(b) duopoly
(c) oligopoly
(d) none of the above
ANSWER:C
126. A monopolist can determine –
(a) price
(b) output
(c) either price or output
(d) both price and output
ANSWER:C
127. A monopolistic firm has a position of ATC
= price in the _____
(a) short run equilibrium
(b) very short run equilibrium
(c) long run equilibrium
(d) any period of time
ANSWER:C

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128. In perfect competition, in the long run, if
new firms enter the industry the supply curve
shifts to the right resulting in ______
(a) fall in price
(b) rise in price
(c) no change in price
(d) none of the above
ANSWER:A
129. The difference between least cost
output and profit maximizing output is called
_____
(a) reserve capacity
(b) excess capacity
(c) normal capacity
(d) abnormal capacity
ANSWER:B
130. The kink occurs at-
(a) any price
(b) prevailing price
(c) any quantity
(d) to be determined price
ANSWER:B
131. Doctors, lawyers, consultants, services
like power supply, telecommunication fees to
different patients/clients. This is a ______ price
discrimination.
(a) first degree
(b) second degree
(c) third degree
(d) both second and third degree
ANSWER:A
132. Charging different prices by monopolist
to customers in geographically separate
market is a degree of price discrimination.
(a) first
(b) second
(c) third
(d) price discrimination is not possible in
separate markets
ANSWER:C
133. Monopolist charging a price that takes
away the entire consumer surplus is a case of
_____ degree of price discrimination.
(a) first
(b) second
(c) third
(d) none of the above
ANSWER:A
134. Which of the following statements refer
to Trice leadership?
(a) Existence of perfect competition
(b) A form of price collusion
(c) Stiff competition
(d) The maintenance of a monopolistic price
ANSWER:B
135. How many sellers usually exist in an
oligopoly market?
(a) A large number of sellers
(b) One seller
(c) Few sellers
(d) Two sellers
ANSWER:C
136. Which of the following is not correct?
(a) if e > 1, MR is +ve
(b) if e < 1, MR is – ve
(c) if e = 1, MR = 0
(d) if e = 0, MR = 0
ANSWER:D
137. Long-run supply curve in the constant
cost industry-
(a) slopes downward to the right
(b) slopes upward to the right
(c) is horizontal straight line
(d) none of the above
ANSWER:C
138. The concept of group equilibrium is
related to-
(a) Paul Sweezy
(b) Chamberlin’s monopolistic competition
(c) Perfect competition
(d) none of the above
ANSWER:B
139. Dumping is an example of price
discrimination which is _____ price
discrimination
(a) of first degree
(b) of second degree
(c) of third degree
(d) international

99. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 99

ANSWER:D
140. _____ is the market structure where there
is a single buyer.
(a) Monopsony
(b) Monopoly
(c) Oligopsony
(d) Duopoly
ANSWER:A
141. At all the level of output AR = MR in _____
(a) a perfect competition market
(b) a monopoly market
(c) a oligopoly market
(d) all the above
ANSWER:A
142. The long run supply curve of an
increasing cost industry
(a) slopes downwards towards right
(b) slopes down towards left
(c) slopes up towards right
(d) none of these
ANSWER:C
143. The long run supply curve sloping down
towards right belongs to _____ industry
(a) increasing cost
(b) decreasing cost
(c) constant cost
(d) none of these
ANSWER:B
144. Under perfect competition, the MC
curve at equilibrium will be-
(a) constant
(b) rising
(c) falling
(d) none of these
ANSWER:B
145. Market price is the price that prevails in a
_____
(a) very short period market
(b) short period market
(c) long period market
(d) secular period market
ANSWER:A
146. The market in which normal price
prevails is a _____ market.
(a) Market period
(b) short period
(c) long period
(d) secular period
ANSWER:C
147. Excess capacity is not found under
(a) Monopoly
(b) Monopolistic Competition
(c) Oligopoly
(d) Perfect Competition
ANSWER:D
148. Which of the following is not a
characteristics of a “price taker”?.
(a) TR = P X Q
(b) AR = Price
(c) Negatively sloped demand curve
(d) Marginal Revenue = Price
ANSWER:C
149. In monopolistic competition, a firm is in
long run equilibrium _____
(a) at the lowest point of the LAC curve
(b) at the falling part of the LAC curve
(c) at the rising part of the LAC curve
(d) when, price = MC
ANSWER:B
150. The sale of branded goods is common
situation is case of _____
(a) perfect competition
(b) monopolistic competition
(c) monopoly
(d) pure competition
ANSWER:B
151. Which market explains that Marginal
Cost is equal to price for attaining
equilibrium.
(a) Perfect Competition
(b) Monopoly
(c) Oligopolyaa
(d) Monopolistic Competition
ANSWER:A
152. When AR = Rs. 10 and AC = Rs. 8 the firm
makes

100. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 100

(a) Normal Profit
(b) Net Profit
(c) Gross Profit
(d) Supernormal Profit
ANSWER:D
153. A firm’s AVC curve is rising, its MC curve
must be ______
(a) constant
(b) above the TC curve
(c) above the AVC curve
(d) all the above
ANSWER:C
154. When a market is in equilibrium or has
cleared it means _____
(a) No shortages exist
(b) Quantity demanded equals quantity sup-
plied
(c) A price is established that clears the
market
(d) All the above
ANSWER:D
155. If a competitive firm doubles its output,
its total revenue-
(a) doubles
(b) more than doubles
(c) less than doubles
(d) none of these
ANSWER:A
156. Which is the first order condition for the
profit of a firm to be maximum?
(a) AC = MR
(b) MC = MR
(c) MR = AR
(d) AC = AR
ANSWER:B
157. Full capacity is utilized only when there is
(a) Monopoly
(b) Perfect Competition
(c) Price Discrimination
(d) Oligopoly
ANSWER:B
158. The upper portion of the kinked demand
curve is relatively-
(a) More elastic
(b) More inelastic
(c) Less elastic
(d) Inelastic
ANSWER:A
159. In the very short run period, the price of
the commodity is influenced most by-
(a) demand
(b) supply
(c) cost
(d) production
ANSWER:A
160. Long run normal prices is that which is
likely to prevail-
(a) all the times
(b) in market period
(c) in short-run period
(d) in long-run period
ANSWER:D
161. The degree of monopoly power is
measured in terms of difference between-
(a) Marginal Cost and the price
(b) Average Cost and Average Revenue
(c) Marginal Cost and Average Cost
(d) Marginal Revenue and Average Cost
ANSWER:A
162. Which of the following would most likely
be a monopoly
A) An appliance store
B) A supermarket
C) An electricity provider
D) A dentist's office
Answer: C
163. Monopolistically competitive firms most
frequently do which of the following?
A) Compete in pricing wars with other firms in
the industry
B) Advertise the traits that make their product
identifiable
C) Enjoy monopoly pricing power
D) Merge and consolidate into oligopolistic
groupings
Answer:B
164. When the government grants an
exclusive patent to one firm, that firm enjoys

101. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 101

A) productive efficiency
B) antitrust regulation
C) monopoly powers
D) collusive prices
Answer: C
165. Which of these could be considered a
government-created barrier to market entry?

A) Discretionary spending
B) Antitrust legislation
C) Patents and copyrights
D) Progressive income taxes
Answer: C

166. The basic difference between copyrights
and patents is that
A) copyrights never expire, while patents
always have an expiration date
B) copyrights are used to protect ideas, while
patents protect processes and products
C) copyrights are awarded by private
entities, while patents are awarded by the
government
D) copyrights always last longer than patents
Answer: B

167. A patent is given to a firm to protect that
firm's
A) monopoly power over a new process or
product
B) research and development investment
C) ability to profit from its discoveries
D) all of the above
Answer: D
168. A perfectly competitive market is not
characterized by
a. many small firms.
b. a great variety of different products.
c. free entry into and exit from the market.
d. any of the above.

ANSWER: b. Perfect competition is
characterized by goods that cannot be
distinguished from one another.


169. Which of the following is a characteristic
of perfect competition?
a. Entry barriers.
b. Homogeneous products.
c. Expenditures on advertising.
d. Quality of service.

ANSWER: b. A homogeneous product is one
that cannot be distinguished from the others,
for example, one potato looks just like
another potato.


170. Which of the following are the same at
all levels of output under perfect
competition?
a. Marginal cost and marginal revenue.
b. Price and marginal revenue.
c. Price and marginal cost.
d. All of the above.

ANSWER: b. Price equals marginal revenue
because each unit is sold at the same price;
therefore, every additional unit sold adds the
price to total revenue.

171. If a perfectly competitive firm sells 100
units of output at a market price of $100 per
unit, its marginal revenue per unit is
a. $1.
b. $100.
c. more than $1, but less than $100.
d. less than $100.

ANSWER: b. Marginal revenue is defined as
the addition to total revenue when selling
one unit.

172. Short-run profit maximization for a
perfectly competitive firm occurs when the
firm’s marginal cost equals
a. average total cost.
b. average variable cost.
c. marginal revenue.
d. all of the above.

ANSWER: c. Profits are maximized or losses are
minimized at the unit of output where MR =
MC. If MR were > than MC, an additional unit
would be produced. If MR were < MC, that
last unit would not be produced.

173. A perfectly competitive firm sells its
output for $100 per unit, and the minimum
average variable cost is $150 per unit. The
firm should
a. increase output.
b. decrease output, but not shut down.
c. maintain its current rate of output.

102. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 102

d. shut down.

ANSWER: d. As shown in the next slide, at this
output a firm’s losses exceed its fixed costs; it
would therefore lose more money by staying
open than by closing down.

174. A perfectly competitive firm’s supply
curve follows the upward-sloping segment of
its marginal cost curve above the
a. average total cost curve (ATC).
b. average variable cost curve (AVC).
c. average fixed cost curve (AFC).
d. average price curve (APC).

ANSWER: b. The supply curve, which is the
MC curve, does not extend below the AVC
curve because below this price the firm
would close down and supply nothing. See
Exhibit 15.
99
10
5
5001,000
15
20
1,5002,000
ATC
AVC
MC
Price & Cost per unit
(dollars)
B
C
D
Exhibit 15 Marginal Revenue and Cost per Unit Curves
Quantity of output
A
(units per week)


175. Assume the price of the firm’s product in
Exhibit 15 is $15 per unit. The firm will produce
a. 500 units per week.
b. 1,000 units per week.
c. 1,500 units per week.
d. 2,000 units per week.

ANSWER: d. This is the number of units in
which MR = MC.


99
10
5
5001,000
15
20
1,5002,000
ATC
AVC
MC
Price & Cost per unit
(dollars)
B
C
D
Exhibit 15 Marginal Revenue and Cost per Unit Curves
Quantity of output
A
(units per week)



176. The lowest price in Exhibit 15 at which the
firm earns zero economic profit in the short-
run is
a. $5 per unit.
b. $10 per unit.
c. $20 per unit.
d. $30 per unit.

ANSWER: b. This is the minimum point of the
ATC curve at which P = ATC. Exactly a
normal profit is being made, that is, zero
economic profit.

174. Assume the price of the firm’s product in
Exhibit 15 is $6 per unit. The firm should
a. continue to operate because it is earning
an economic profit.
b. stay in operation for the time being even
though it is incurring an economic loss.
c. shut down temporarily.
d. shut down permanently.

ANSWER: b. At this price, the firm’s losses are
less than its fixed costs; it will therefore lose
less money by staying open than closing.

175. Assume the price of the firm’s product in
Exhibit 15 is $10 per unit. The maximum profit
the firm earns is
a. zero.
b. $5,000 per week.
c. $1,500 per week.
d. $10,500 per week.

ANSWER: a. In perfect competition, Price =
AR = MR = the firm’s short-run demand curve.
When P = ATC, the firm’s revenues equal its
costs, so zero economic profits are made.
Normal profit is included as a part of the
firm’s cost data because it is a necessary
expense of operating the business.

103. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 103


176. In Exhibit 15, the firm’s total revenue at a
price of $10 per unit pays for
a. a portion of total variable costs.
b. a portion of total fixed costs.
c. none of the total fixed costs.
d. all of the total fixed costs and total
variable cost.

ANSWER: d. At a price of $10, the firm is
making an economic profit, which is more
than enough money is being made to meet
its fixed costs.

177. As shown in Exhibit 15, the short-run
supply curve for this firm corresponds to
which segment of its marginal cost curve?
a. A to D and all points above.
b. B to D and all points above.
c. C to D and all points above.
d. B to C only.

ANSWER: b. A supply curve shows how many
units will be produced at various prices. The
firm’s supply curve is its MC curve which lies
above its AVC curve because it will always
produce where MR (AR, P) = MC.

178. In long-run equilibrium, the perfectly
competitive firm’s price equals which of the
following?
a. Short-run marginal cost.
b. Minimum short-run average total cost.
c. Marginal revenue.
d. All of the above.

ANSWER: d. Long-run equilibrium is at the
price in which a normal profit is being made.
Normal profit is when P(AR) = ATC in long-run
equilibrium.

179. In a constant-cost industry, input prices
remain constant as
a. the supply of inputs fluctuates.
b. firms encounter diseconomies of scale.
c. workers become more experienced.
d. firms enter and exit the industry.

ANSWER: d. A constant-cost industry is when
the entry or exit of firms has little impact on a
firm’s cost curves.

180. Suppose that, in the long run, the price
of feature films rises as the movie production
industry expands. We can conclude that
movie production is a (an)
a. increasing-cost industry.
b. constant-cost industry.
c. decreasing-cost industry.
d. marginal-cost industry.

ANSWER: a. An industry in which the
expansion of industry output by the entry of
new firms increases the firm’s cost curves.

181. Which of the following is true of a
perfectly competitive market?
a. If economic profits are earned, then the
price will fall over time.
b. In long -run equilibrium,
P=MR=SRMC=SRATC=LRAC.
c. A constant-cost industry exists when the
entry of new firms has no effect on their cost
curves.
d. All of the above.

ANSWER: d. All of the above statements are
true.

182. Suppose that in a perfectly competitive
market, firms are making economic profits. In
the long run, we can expect to see
a. some firms leave.
b. the market price rise.
c. market supply shift to the left.
d. economic profits become zero.

ANSWER: d. In the long run, economic profits
attract firms to enter the industry until zero
economic profits are earned and firms are no
longer attracted to the industry.

183. Assume the short-run average total cost
of a perfectly competitive industry decreases
as the output of the industry expands. In the
long run, the industry supply curve will
a. have a positive slope.
b. have a negative slope.
c. be perfectly horizontal.
d. be perfectly vertical.

ANSWER: b. In a decreasing-cost industry, the
short-run average total cost curve (SRATC)
shifts lower and the equilibrium price
decreases as output increases. The result is a
negative slope for the long run supply curve.

184. The long-run supply curve for a
competitive constant-cost industry is
a. horizontal.
b. vertical.
c. upward sloping.
d. downward sloping.

104. 103- EABD Chapter-Wise - Practice Paper Compiled by: Dr. Bhati Rakesh Page | 104

ANSWER: a. In a constant-cost industry, both
the short-run average total cost curve
(SRATC) and the equilibrium price remain
constant as output increases. The result is a
zero slope for the long-run supply curve.
185. A monopolist always faces a demand
curve that is
a. perfectly inelastic.
b. perfectly elastic.
c. unit elastic.
d. the same as the market demand curve.

ANSWER: d. A monopoly is the only seller, so
there is no distinction between the market
demand curve and the individual demand
curve.

186. A monopoly sets the
a. price at which marginal revenue equals
zero.
b. price that maximizes total revenue.
c. highest possible price on its demand curve.
d. price at which marginal revenue equals
marginal cost.

ANSWER: d. As shown in the next slide, profits
are always maximized if the firm produces at
the point where MR = MC.

187. A monopolist sets
a. the highest possible price.
b. a price corresponding to the minimum
average total cost.
c. a price equal to marginal revenue.
d. a price determined by the point on the
demand curve corresponding to the level of
output at which marginal revenue equals
marginal cost.

ANSWER: d. Demand determines price in all
market forms.

188. Which of the following is true for the
monopolist?
a. Economic profit is possible in the long-run.
b. Marginal revenue is less than the price
charged.
c. Profit maximizing or loss minimizing occurs
when marginal revenue equals marginal
cost.
d. All of the above are true.

ANSWER: d. As shown in the graph on the
next slide, all of the above are characteristics
of a monopoly.
66
20
10
100200
30
40
300400
ATC
AVC
MC
D
MR
Exhibit 11 Profit Maximizing for a Monopolist
0
Quanitityof output
(units per day)
Price, costs and revenue
(dollars)


189. As shown in Exhibit 11, the profit-
maximizing or loss-minimizing output for this
monopolist is
a. 100 units per day.
b. 200 units per day.
c. 300 units per day.
d. 400 units per day.

ANSWER: b. 200 units is the point at which MR
= MC.


190. As shown in Exhibit 11, this monopolist
a. should shut down in the short run.
b. should shut down in the long run.
c. earns zero economic profit.
d. earns positive economic profit.

ANSWER: d. At the point where MR = MC (on
the vertical line), P is greater than ATC;
therefore, total revenue is greater than total
cost and an economic profit is being made.

191. To maximize profit or minimize loss, the
monopolist in Exhibit 11 should set its price at
a. $30 per unit.
b. $25 per unit.
c. $20 per unit.
d. $10 per unit.
e. $40 per unit.

ANSWER: b. Maximum profit or minimized
losses are found by drawing a vertical line
where MR = MC. This line intersects the
demand curve at $25.


192. If the monopolist in Exhibit 11 operates at
the profit-maximizing output, it will earn total
revenue to pay about what portion of its total
fixed cost?
a. None
b. One-half
c. Two-thirds

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d. All total fixed costs

ANSWER: d. Since the monopolist is making a
profit, it can pay all of its fixed costs.


193. For a monopolist to practice effective
price discrimination, one necessary condition
is
a. identical demand curves among groups of
buyers.
b. differences in the price elasticity of
demand among groups of buyers.
c. a homogeneous product.
d. none of the above.

ANSWER: b. Price discrimination takes place
when a monopolist is faced with buyers that
are widely different; therefore, the buyers'
elasticity of demand for the product will be
different.


194. What is the act of buying a commodity
at a lower price and selling it at a higher
price?
a. Buying short.
b. Discounting.
c. Tariffing.
d. Arbitrage.

ANSWER: d. The practice of earning a profit
by buying a good at a low price and reselling
the good at a higher price.


195. Under both perfect competition and
monopoly, a firm
a. is a price taker.
b. is a price maker.
c. will shut down in the short run if price falls
short of average total cost.
d. sets marginal cost equal to marginal
revenue.

ANSWER: d. The profit maximizing output for
any firm is where MR = MC.

196. At any point where a monopolist’s
marginal revenue is positive, the
downward-sloping straight-line demand
curve is
a. perfectly elastic.
b. elastic, but not perfectly elastic.
c. unitary elastic.
d. inelastic.

ANSWER: b. When marginal revenue is zero,
the demand curve is unitary elastic, and it is
inelastic when marginal revenue is negative.
Demand is perfectly elastic in perfect
competition.

197. Suppose a monopolist charges a price
corresponding to the intersection of the
marginal cost and marginal revenue curves.
If this price is between its average variable
cost and average total cost curves, the firm
will
a. earn an economic profit.
b. stay in operation in the short run, but shut
down in the long run if demand remains the
same.
c. shut down.
d. none of the above.

ANSWER: b. If the firm can cover its average
variable cost, it is paying for the cost of
operating. In the long run, demand could
increase and the firm earns economic profit.


198. In contrast to a perfectly competitive
firm, a monopolist operates in the long run at
a quantity of output at which
a. P = MC.
b. MR = MC.
c. P = ATC.
d. P > MR.

ANSWER: d. The perfectly competitive firm’s
demand curve is perfectly elastic; therefore,
the firms operates where P = MR. For a
monopolist, the MR curve is downward
sloping and below the price.

199. The monopolist, unlike the perfectly
competitive firm, can continue to earn an
economic profit in the long run because of
a. collusive agreements with competitors.
b. price leadership.
c. cartels.
d. extremely high barriers to entry.

ANSWER: d. Answers a. – c. can increase a
monopolist’s profits, but a key characteristic
that results in long run economic profit is an
extremely high barrier to entry.

200. Cartel pricing
a. Is more likely to be maintained when
there number of firms in the cartel is large
b. Increases both price and industry output.

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c. Is most likely to be maintained when
there is free entry into the market.
d. Is illegal under the terms of the Act.

ANSWER: d.
201) What is the difference between perfect
competition and monopolistic competition?
A) Perfect competition has a large number of
small firms while monopolistic competition
does not.
B) In perfect competition, firms produce
identical goods, while in monopolistic
competition, firms produce
slightly different goods.
C) Perfect competition has no barriers to
entry, while monopolistic competition does.
D) Perfect competition has barriers to entry
while monopolistic competition does not.
Answer: B

202) The market type known as perfect
competition is
A) almost free from competition and firms
earn large profits.
B) highly competitive and firms find it
impossible to earn an economic profit in the
long run.
C) dominated by fierce advertising
campaigns.
D) marked by firms continuously trying to
change their products so that consumers
prefer their product to
their competitors' products.
Answer: B

203) Which of the following market types has
all firms selling products so identical that
buyers do not care from which firm they buy?
A) perfect competition
B) oligopoly
C) monopolistic competition
D) monopoly

Answer:A

204) Perfect competition is characterized by
all of the following EXCEPT
A) well-informed buyers and sellers with
respect to prices.
B) a large number of buyers and sellers.
C) no restrictions on entry into or exit from the
industry.
D) considerable advertising by individual
firms.

Answer:D

205) Which of the following is the best
example of a perfectly competitive market?
A) diamonds
B) athletic shoes
C) soft drinks
D) farming
Answer:D

206) Which of the following market types has
the fewest number of firms?
A) perfect competition
B) monopoly
C) monopolistic competition
D) oligopoly
Answer:B

207) Which of the following market types has
a large number of firms that sell similar but
slightly different products?
A) perfect competition
B) oligopoly
C) monopolistic competition
D) monopoly
Answer:C

208) Which of the following market types has
only a few competing firms?
A) perfect competition
B) monopolistic competition
C) monopoly
D) oligopoly
Answer:D

209) In a perfectly competitive market, the
type of decision a firm has to make is
different in the short run than in the long run.
Which of the following is an example of a
perfectly competitive firm's short -run
decision?
A) what price to charge buyers for the
product
B) whether or not to enter or exit an industry
C) the profit-maximizing level of output
D) how much to spend on adv ertising and
sales promotion
Answer:C

210) In perfect competition, a firm maximizes
profit in the short run by deciding
A) how much output to produce.
B) whether or not to enter a market.
C) what price to charge.
D) how much capital to use.
Answer:A

211) In a perfectly competitive market, the
type of decision a firm has to make is

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different in the short run than in the long run.
Which of the following is an example of a
perfectly competitive firm's long -run
decision?
A) what price to charge buyers for t he
product
B) how much to spend on advertising and
sales promotion
C) the profit-maximizing level of output
D) whether or not to enter or exit an industry

Answer:D

212) A price-taking firm
A) cannot influence the price of the product
it sells.
B) talks to rival firms to determine the best
price for all of them to charge.
C) sets the product's price to whatever level
the owner decides upon.
D) asks the government to set the price of its
product.
Answer:A

213) A large number of sellers all selling an
identical product implies which of the
following?
A) horizontal market supply curves
B) large losses by all sellers
C) the inability of any seller to change the
price of the product
D) market chaos
Answer:C

214) Perfectly competitive firms are price
takers because
A) each firm is very large.
B) there are no good substitutes for their
goods.
C) many other firms produce identical
products.
D) their demand curves are downward
sloping.

Answer:C

215) If demand for a seller's product is
perfectly elastic, which of the following is
correct?
A) There is no incentive to sell at a price
below the market price.
B) It will not sell any output at all if it tries to
price its product above the market price.
C) There are a very large number of perfect
substitutes for the seller's product.
D) All of the above answers are correct.
Answer:D

216) One of the requirements for a monopoly
is that
A) the product cannot be produced by small
firms.
B) there are several close substitutes for the
product.
C) there is a unique product with no close
substitutes.
D) products are high priced.
Answer:C

217) A monopoly is a market with
A) no barriers to entry.
B) many substitutes.
C) many suppliers.
D) one supplier.
Answer:D

218) Firms face competition when the good
they produce
A) is in a market with natural barriers to entry.
B) is unique.
C) is in a market with legal barriers to entry.
D) has a close substitute.
Answer:D

219) Which of the following statements is
correct?
A) The market demand and the firm's
demand are the same for a monopoly.
B) Monopolies have perfectly inelastic
demand for the product sold.
C) Monopolies are guaranteed to earn an
economic profit.
D) All of the above are correct.
Answer:A

220) Which describes a barrier to entry?
A) anything that protects a firm from the
arrival of new competitors
B) a government regulation that bars a
monopoly from earning an economic profit
C) something that establishes a barrier to
expanding output
D) firms already in the market incurring
economic losses so that no new firm wants to
enter the market
Answer:A

221) A barrier to entry is
A) an open door.
B) the economic term for diseconomies of
scale.
C) illegal in most markets.
D) anything that protects a firm from the
arrival of new competitors.

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Answer:D

222) Which of the following would create a
natural monopoly?
A) requirement of a government license
before the firm can sell the good or service
B) technology enabling a single firm to
produce at a lower average cost than two or
more firms
C) an exclusive right granted to supply a
good or service
D) ownership of all the available units of a
necessary input

Answer: B

223) If the technology for producing a good
enables one firm to meet the entire market
demand at a lower price than two or more
firms could, then that firm has
A) a legal barrier to entry.
B) a natural monopoly.
C) increasing average total costs.
D) patented the market.

Answer: B

224) Which of the following goods is the best
example of a natural monopoly?
A) natural gas
B) diamonds
C) a patented good
D) first-class mail

Answer:A

225) Which of the following is the best
example of a natural monopoly?
A) owning the only licensed taxicab in town
B) the United States Postal Service
C) ownership of the only ferry across Puget
Sound for twenty miles
D) the cable television company in your
hometown
Answer:D

226) Which barrier to entry is an exclusive
right granted to the author or composer of a
literary, musical, dramatic or artistic work?
A) government license
B) patent
C) public franchise
D) copyright
Answer:D

227) Patents
A) stimulate innovation.
B) encourage the invention of new products
and production methods.
C) are exclusive rights granted to the inventor
of a product or service.
D) All of the above answers are correct.

Answer: D

228) Which of the following is NOT correct
about patents?
A) Patents stimulate innovation.
B) A patent is a barrier to entry.
C) Patents enable a firm to be a permanent
monopoly.
D) Patents encourage invention of new
products.

Answer: C

229) Recently in a small city, building
contractors lobbied the city council to pass a
law requiring all people working on residential
dwellings be licensed by the city. Why would
the contractors lobby for this requirement?
A) to reduce the cost of building dwellings
B) There is no good explanation for this type
of lobbying.
C) to guarantee that work on dwellings is of
high quality
D) to create a legal barrier to entry
Answer:D

230) Ownership of a necessary input creates
what type of barrier to entry?
A) natural barrier to entry
B) a public franchise
C) a government license
D) legal barrier to entry
Answer:D

231) An industry with a large number of firms,
differentiated products, and free entry and
exit is called
A) oligopoly.
B) monopoly.
C) monopolistic competition.
D) perfect competition.
Answer:C

232) In monopolistic competition, each firm
supplies a small part of the market. This
occurs because
A) there are barriers to entry.
B) firms produce differentiated products.
C) there are no barriers to entry.
D) there are a large number of firms.
Answer: D

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233) In monopolistic competition, the
products of different sellers are assumed to
be
A) similar but slightly different.
B) identical perfect substitutes.
C) either identical or differentiated.
D) unique without any close or perfect
substitutes.
Answer:A

234) Which of the following is different about
perfect competition and monopolistic
competition?
A) Firms in monopolistic competition
compete on their product's price as well as its
quality and marketing.
B) In monopolistic competition, entry into the
industry is unblocked.
C) Perfect competition has a large number
of independently acting sellers.
D) Only firms in monopolistic competition can
earn an economic profit in the short run.
Answer:A

235) In an industry with a large number of
firms,
A) collusion is impossible.
B) one firm will dominate the market.
C) each firm will produce a large quantity,
relative to market demand.
D) competition is eliminated.
Answer:A

236) Which of the following is an example of
a monopolistically competitive industry?
A) wheat farming
B) colleges and universities
C) the local electricity producer
D) the domestic automobile producing
industry
Answer: B

237) All of the following are examples of
product differentiation in monopolistic
competition EXCEPT
A) new and improved packaging.
B) lower price.
C) acceptance of more credit cards than
the competition.
D) location of the retail store.
Answer: B

238) A differentiated product has
A) many perfect substitutes.
B) close but not perfect substitutes.
C) no close substitutes.
D) no substitutes of any kind.

Answer:B

239) As the degree of product differentiation
increases among the products sold in a
monopolistically competitive industry, which
of the following occurs?
A) The cost of production falls.
B) The amount of mar keting expenditures
decreases for each firm.
C) The demand curve for each seller's
product becomes more horizontal.
D) Each seller's demand becomes more
inelastic.
Answer:D

240) Marketing consists of what?
A) selling at a lower price than rivals sell for
B) producing more output to lower average
costs
C) advertising and packaging
D) None of the above answers are correct.
Answer:C

241) Firms use marketing to
A) influence a consumer's buying decision.
B) convince customers that their product is
worth its price.
C) persuade buyers that their product is
superior to others.
D) All of the above answers are correct.
Answer: D

242) If a monopolistically competitive seller
can convince buyers that its product is of
better quality and value than products sold
by rival firms,
A) demand increases.
B) the firm gains more control over its price.
C) demand becomes more inelastic.
D) all of the above occur.
Answer:D

243) Which of the following statements is true
for both monopolistically
A) It is impossible for new firms to enter the
industries.
B) Collusion and the creation of cartels is
common.
C) Producers cannot benefit from knowing
other firms' plans.
D) Firms have some degree of control over
prices.
Answer:D

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244). Which of the following best describes an
oligopoly?
A) many monopolistically competitive firms
B) a few firms sharing monopoly power
C) a former monopoly that has been broken
up by the government
D) a government -granted franchise or
monopoly
Answer:B

245) Collusion most frequently occurs in
industries that are
A) oligopolistic
B) monopolistically competitive
C) monopolistic
D) perfectly competitive
Answer:A

246) If a few firms share most of an entire
industry's revenues, the market structure is
most likely
A) monopolistically competitive
B) an oligopoly
C) perfectly competitive
D) a monopoly
Answer:B

247) All of the following can help break a
monopoly EXCEPT
A) increased barriers to entry
B) changing consumer tastes
C) international competition
D) technology and innovation
Answer:A

248). Which of the following best describes a
successful monopolist?
A) The only buyer of a resource or type of
labor
B) The only seller of a difficult-to-substitute
product
C) The only buyer of a consumer product
D) The only seller of a non-essential product
Answer:B

249). A monopoly is able to make greater
profits than a perfectly competitive firm
because
A) the monopolist fixes prices in cooperation
with its rivals
B) barriers to entry in the monopolist's market
prevent competition
C) antitrust legislation protects the monopolist
from regulation
D) monopolistic firms are always larger than
competitive firms
Answer:B

250). Which of the following is most likely to
be observed in a monopolistically
competitive market?
A) Standardized, homogenous products
B) Collusion and price-fixing between firms
C) Government antitrust oversight
D) Non-price competition, such as advertising
Answer:D


251. An industry with many small sellers, a
differentiated product, and easy entry would
best be described as which of the following?
a. Oligopoly
b. Monopolistic competition
c. Perfect competition
d. Monopoly
ANSWER: b. An oligopoly has only a few
sellers. A monopoly only has one, and
perfect competition has homogeneous
products.


252. Which of the following industries is the
best example of monopolistic competition?
a. Wheat.
b. Restaurant.
c. Automobile.
d. Water service.

ANSWER: b. Wheat would be in a perfectly
competitive market. Automobiles would be
an oligopoly. And the water service is an
example of a regulated monopoly.

253. Which of the following is not a
characteristic of monopolistic competition?
a. A large number of small firms.
b. A differentiated product.
c. Easy market entry.
d. A homogeneous product.

ANSWER: d. A characteristic of monopolistic
competition is differentiated products.

254. A monopolistically competitive firm will
a. maximize profits by producing where MR =
MC.
b. not earn an economic profit in the long
run.
c. shut down if price is less than average
variable cost.
d. do all of the above.

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ANSWER: d. Both a monopolistically
competitive firm and a perfectly competitive
firm share these characteristics.

255. The theory of monopolistic competition
predicts that in long-run equilibrium a
monopolistically competitive firm will
a. produce the output level at which price
equals long-run marginal cost.
b. operate at minimum long-run average
cost.
c. overutilize its insufficient capacity.
d. produce the output level at which price
equals long-run average cost.

ANSWER: d. In long-run equilibrium, output
occurs where the price equals long-run
average cost.

256. A monopolistically competitive firm is
inefficient because the firm
a. earns positive economic profit in the long
run.
b. is producing at an output where marginal
cost equals price.
c. is not maximizing its profit.
d. produces an output where average total
cost is not minimum.

ANSWER: d. Output occurs where average
cost is not at a minimum.

257. A monopolistically competitive firm in the
long run earns the same economic profit as a
a. perfectly competitive firm.
b. monopolist.
c. cartel.
d. none of the above.


ANSWER: a. In the long-run, a normal profit is
made because of the ease of entry and exit.
Once economic profits are made, more firms
will enter the industry driving the price down.
When losses are made, firms leave the
industry, driving the price up, restoring profits.

258. One possible effect of advertising on a
firm’s long-run average cost curve is to
a. raise the curve.
b. lower the curve.
c. shift the curve rightward.
d. shift the curve leftward.

ANSWER: a. The ATC curve is raised because
of the added expense of the advertising.

259. Monopolistic competition is an inefficient
market structure because
a. firms earn zero profit in the long-run.
b. marginal cost is less than price in the long-
run.
c. a wider variety of products is available
compared to perfect competition.
d. all of the above.

ANSWER: b. In the long-run, marginal cost is
less than price because of the downward
sloping demand curve and a marginal
revenue curve that is more steeply sloped
beneath the demand curve.

260. The “Big Three” Indian automobile
industry is described as
a. a monopoly.
b. perfect competition.
c. monopolistic competition.
d. an oligopoly.

ANSWER: d. An oligopoly is a market form
with only a few sellers.


261. The cigarette industry in the India is
described as
a. a monopoly.
b. perfect competition.
c. monopolistic competition.
d. an oligopoly.

ANSWER: d. The cigarette industry has only a
few sellers.

262. A characteristic of an oligopoly is
a. mutual interdependence in pricing
decisions.
b. easy market entry.
c. both (a) and (b).
d. neither (a) nor (b).

ANSWER: a. The distinguishing feature of an
oligopoly is mutual interdependence. No one
firm will make a decision without first
considering the reaction of its competitors to
its policy change.

263. The kinked demand curve theory
attempts to explain why an oligopolistic firm
a. has relatively large advertising
expenditures.
b. fails to invest in research and development
(R and D).
c. infrequently changes its price.
d. engages in excessive brand proliferation.

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ANSWER: c. Everything else being equal, if
firm A raises its price, other firms will not raise
theirs, and A will experience a big decline in
sales. If A lowers its price, other firms will
follow suit and A will not gain many sales.

264. According to the kinked demand curve
theory, when one firm raises its price, other
firms will
a. also raise their prices.
b. refuse to follow.
c. increase their advertising expenditures.
d. exit the industry.

ANSWER: b. They will refuse to follow firm A
because they can gain more by charging a
lower price, their sales will increase because
fewer people will buy from firm A.

265. Which of the following is evidence that
OPEC is a cartel?
a. Agreement on price and output quotas by
oil ministries.
b. Ability to raise prices regardless of
demand.
c. Mutual interdependence in pricing and
output decisions.
d. Ability to completely control entry.

ANSWER: a. A cartel is characterized by
collusion, the coming together and agreeing
to certain policies, for example, the level of
prices.


266. All of the following are ways
monopolistically competitive firms
differentiate their products EXCEPT
A. Selling with slightly different physical
characteristics.
B. Selling products at different locations.
C. Offering different levels of service that
come with a product.
D. None of the above are exceptions they
are all ways of differentiating products.

ANSWER:D

267. If a regulatory agency follows a policy of
average cost pricing, then a natural
monopolist will
A. Be forced to shut down.
B. Have an incentive to decrease costs.
C. Earn economic profit greater than zero.
D. Produce more than it would if it were
unregulated.

ANSWER:D


268. Oligopolists prefer
A. Price competition to non-price (product
differentiation) competition because
consumers care more about price than other
features.
B. To act independently in establishing their
prices.
C. To compete in terms of product
differentiation, because such changes are
more difficult and take longer to match than
price changes.
D. To compete in terms of product
differentiation because these changes
reduce costs and make consumer demand
more elastic.

ANSWER:C

269. All of the following are ways in which
oligopoly differs from monopoly and perfect
competition EXCEPT
A. Firms consider each others' actions when
choosing price and quantity.
B. There are a few but not infinitely many firms
in the industry.
C. Firms act strategically.
D. The firms are not subject to diminishing
returns in the short-run.

ANSWER:D


270. Suppose Kevin offers to match his
competitors' price in an oligopoly market. This
will have the effect of
A. Eliminating his competitors' incentive to
reduce price if his threat is credible.
B. Driving out his competition.
C. Increasing his competitors incentive to
reduce price if his threat is credible.
D. Triggering an antitrust investigation.

ANSWER:A

271. Which of following is an example of a
monopolistically competitive firm?
A. Farmer Jones's wheat farm.
B. Post Breakfast Cereals.
C. TCI Cablevision, a supplier of cable T.V.
services.
D. T.J.'s Clothes, a local retail clothing store.

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ANSWER:D

272. Empirical studies indicate that entry
A. Decreases prices and profits.
B. Decreases price, but increases profits.
C. Increases price and profits.
D. Increases price and decreases profits.

ANSWER:A

273. Under perfect price discrimination:
A. there is excess demand.
B. there is a positive deadweight loss.
C. the monopolist makes zero profit.
D. consumers’ surplus is zero.

ANSWER:D

274. If a monopolist can perfectly price
discriminate, then MR is equal to:
A. the demand curve.
B. an undefined number.
C. a constant number.
D. MC.

ANSWER:A

275. Under ordinary price discrimination, the
monopolist charges a higher price in the
market with:
A. higher elasticity of demand.
B. lots of consumers.
C. unit elasticity of demand.
D. lower elasticity of demand.

ANSWER:D
276. Under ordinary price discrimination in
several markets, a monopolist would allocate
output to ensure that in each market:
A. the consumer surplus of the consumer
with the highest willingness-to-pay is the
same.
B. the slope of the demand curve is the
same.
C. marginal revenue is the same.
D. quality of service is the same.

ANSWER:C

277.If we require a monopolist to stop
practicing ordinary price discrimination
across two markets, one of two things will
happen:
A. the monopolist will cease pricing on the
inelastic portion of each demand curve in
the two markets to price on the elastic
portion, or shut-down.
B. the monopolist will reduce sales in the
inelastic market and increase them in the
elastic market, or stop selling in the
inelastic market altogether.
C. the monopolist will begin making it
possible for consumers to arbitrage across
the two markets, or shut-down.
D. the monopolist will stop selling in the more
elastic market or begin charging a price
in both markets which is a weighted
average of the previous discriminatory
prices.

ANSWER: D

278. Coupons and mail-in rebates for
consumer goods and lower fares, coupled
with Saturday stay-over requirements for
airlines are examples of mechanisms
designed to foster price discrimination
through:
A. horizontal integration.
B. self selection.
C. monopsony.
D. arbitrage.

ANSWER:B

279.In order to price discriminate, it is
important to:
A. be a duopolist.
B. sell in at least 3 markets.
C. prevent resale of the product.
D. produce in the elastic portion of the
demand curve.

ANSWER: C

280. A firm will find it difficult to engage in
price discrimination if:
A. there are many consumers.
B. the demand curve is downward-sloping.
C. the good is normal.
D. there are close substitutes.

ANSWER: D

281.All forms of price discrimination are
intended to:
A. minimize transactions costs.
B. make some consumers feel superior.
C. make some consumers feel inferior.
D. maximize profits.

ANSWER: D

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282. Lining up at a movie theatre on opening
night is a form of:
A. market failure.
B. price discrimination.
C. self-selection.
D. market segmentation.

ANSWER: C

283. Perfect price discrimination results when:
A. a firm can raise its price for the marginal
customer.
B. every consumer is forced to pay below his
or her reservation price.
C. every consumer is forced to pay his or her
reservation price.
D. every consumer is forced to pay above
his or her reservation price.

ANSWER: C

284. In a monopoly, price is greater than:
A. marginal revenue.
B. quantity.
C. total revenue.
D. supply.

ANSWER: A

285.If a firm faces a declining average
revenue schedule, its marginal revenue must
be:
A. Convex.
B. parabolic.
C. constant.
D. falling.

ANSWER: D

286. Marginal revenue is equal to:
A. price, plus quantity divided by the slope
of the demand curve.
B. price, plus quantity multiplied by the slope
of the supply curve.
C. quantity, plus price multiplied by the slope
of the demand curve.
D. price, plus quantity multiplied by the slope
of the demand curve.

ANSWER: D

287. Suppose marginal cost is 3 and the price
elasticity of demand is constant and equal to
4. A profit-maximizing monopolist will set a
price equal to:
A. 6.7.
B. 5.
C. 5.5.
D. 4.

ANSWER: D

288. A monopolist faces a demand curve
with constant price elasticity of demand. It
also has constant marginal cost. If marginal
cost increases by 10%, its profit-maximizing
price will increase by:
A. There isn’t enough information to
determine what will happen to price.
B. less than 10%.
C. more than 10%.
D. exactly 10%.

ANSWER: D

289. If the marginal revenue for a good is
negative, then the price elasticity of demand
is:
A. equal to 1.
B. zero.
C. greater than 1.
D. less than 1.

ANSWER: D

290. If total revenue is at its maximum level,
then marginal revenue is equal to:
A. one.
B. marginal product.
C. zero.
D. average revenue.

ANSWER: C

291. For linear demand, if demand is unitary
elastic at a given point (the absolute value of
the own-price elasticity is equal to 1), then:
A. total revenue must be at its minimum level
and marginal revenue is maximized.
B. total revenue must be at its maximum
level and marginal revenue is equal to
one.
C. profit must be at its minimum level and
marginal revenue is maximized.
D. total revenue must be at its maximum
level and marginal revenue is equal to
zero.

ANSWER: D

292. The few sources of monopoly are:
government franchise, patents, resource
ownership and technological (natural)

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monopoly. Two other sources of monopoly
could include:
A. Advertising; and quantity discounts or bulk
pricing.
B. Entry of firms with inferior technology; and
genetic engineering.
C. Illegal collusive behaviour; and illegal
threats, made to potential entrants, of
bodily harm or sabotage.
D. There are no other sources of monopoly.

ANSWER:C

293. For a monopolist, the price of the
product:
A. exceeds the marginal revenue.
B. equals the marginal revenue.
C. equals the marginal cost.
D. is less than the marginal revenue.

ANSWER: A

294. If MR > MC, the monopolist should:
A. decrease production.
B. increase production.
C. stop producing.
D. maintain the same level of production.

ANSWER:B

295. A monopoly firm selling study guides to
business students in a small university town is
currently maximizing profits by charging a
price of Rs. 45 per study guide. It follows that
the marginal cost of these study guides is:
A. greater than Rs. 45.
B. equal to Rs. 45.
C. less than Rs. 45.
D. greater than the average total cost.

ANSWER: C

296. Under conditions where a monopolist
incurs zero production costs, it would
produce the output level where marginal
revenue intersects the quantity axis. At this
point, the price elasticity of demand would
be:
A. zero.
B. relatively elastic.
C. perfectly elastic.
D. one.

ANSWER: A

297.For a monopoly firm, which of the
following equalities is always true?
A. Price = average revenue
B. Price = marginal revenue
C. Price = total revenue
D. Marginal revenue = marginal cost

ANSWER: A

298. When a firm operates with excess
capacity
A. it must be a perfectly competitive firm
B. it must be a monopolistically competitive
firm
C. additional production would increase the
average total cost
D. additional production would lower the
average total cost

ANSWER: D

299. Oligopolies can end up looking like
competitive markets if the number of firms is
A. small and they all cooperate
B. small and they do not cooperate
C. large and they all cooperate
D. large and they do not cooperate

ANSWER: D

300. For any given price, a firm in a
competitive market will maximize profit by
selecting the level of output at which price
intersects the
A. average total cost curve
B. average variable cost curve
C. buyers marginal cost curve
D. marginal revenue curve

ANSWER:C

301. Under perfect competition, price of the
product
a) Can be controlled
b) Cannot be controlled
c) Can be controlled within certain limit
d) None of the above

ANSWER: B Under perfect competition all
firms are price takers


302. If a firm in a perfectly competitive
market is earning normal economic profits,
which of the following is true?
a) P>ATC and MC=MR
b) P<ATC and MC=MR
c) P>MR, P>ATCP and MC=MR
d) P=ATC=MC=MR

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ANSWER: DA firm produces at the quantity
where MR=MC, so we know that is true. A firm
makes normal economic profits (in other
words, zero profit) when P=ATC. In perfect
competition a firm earns normal profit when it
price equals the minimum of ATC, and at that
point MC=ATC.


303.For a perfectly competitive firm:
a) Total revenue is a straight line
b) Price is greater than marginal revenue
c) Price equals total revenue
d) Price equals total cost

ANSWER: A Marginal revenue is constant so
total revenue increases by a constant
amount with the sale of each extra unit, i.e
total revenue is a straight line.


304. A profit maximizing firm in perfect
competition produces where:
a) Total revenue is maximized
b) Marginal revenue equals zero
c) Marginal revenue equals marginal cost
d) Marginal revenue equals average cost

ANSWER: C A profit maximizing firm in perfect
competition produces where marginal
revenue equals marginal cost (this means no
extra profit can be made).

305. Fried Breads Revisited is a food truck in a
perfectly competitive industry. Its total cost of
producing 100 donuts is Rs. 300 and the
market price for a donut is Rs. 4. If this firm is
representative of a typical firm in this market,
which of the following can be inferred?
a)The marginal cost of the 100th unit is
greater than Rs.4
b) This firm is earning economic losses.
c) Firms will enter this market in the long run.
d) There is no incentive for firms to enter or
exit this market.

ANSWER: C This firm is earning a profit
because its average total cost is Rs.300/100=
Rs. 3 and its price is Rs.4. When firms are
earning profits, they are operating on the
increasing portion of their average total cost
curve. Also, when firms earn profits, this
attracts other firms into the industry.

306. Which of the following is the most
competitive market structure?
a) Perfect competition
b) Monopolistic competition
c) Oligopoly
d) Monopoly

ANSWER: A Perfect competition is the most
competitive market structure

307.In the long run equilibrium in perfect
competition:
a) Price = average cost = marginal cost
b) Price = average cost = total cost
c) Price = marginal revenue = total cost
d) Total revenue = total variable cost

ANSWER:A In the long run in perfect
competition price = average cost= marginal
cost.

308.In perfect competition, the product of a
single firm
a) has many perfect substitutes produced by
other firms.
b) has many perfect complements
produced by other firms.
c) is sold under many differing brand names.
d) is sold to different customers at different
prices.

ANSWER:A In perfect competition, the
product of a single firm has many perfect
substitutes produced by other firms.

309. If under perfect competition, the price
line lies below the average cost curve, the
firm would:
a) Make only Normal profits
b) Incur losses
c) Make abnormal profit
d) Profit cannot be determined

ANSWER:B If under perfect competition, the
price line lies below the average cost curve,
the firm would: Incur losses


310. In perfect competition,
a) each firm can influence the price of the
good.
b) there are few buyers.
c) there are significant restrictions on entry.
d) all firms in the market sell their product at
the same price.

ANSWER:D There is no one big seller with any
significant influence on the market. So all the
firms in such a market are price takers.

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311. In perfect competition, the price of the
product is determined where the industry
a) elasticity of supply equals the industry
elasticity of demand.
b) supply curve and industry demand curve
inter sect.
c) average variable cost equals the industry
average total cost.
d) fixed cost is zero

ANSWER: B In perfect competition, the price
of the product is determined where the
industry supply curve and industry demand
curve intersect.

312. In perfect competition, a firm that
maximizes its economic profit will sell its good
a) below the market price.
b) at the market price.
c) above the market price.
d) below the market price if its supply curve
is inelastic and above the market price if
its supply curve is elastic

ANSWER: B In perfect competition, a firm that
maximizes its economic profit will sell its good
at the market price.

313. On the market with perfect competition:
a) the firm is a "price-taker," meaning, it takes
over the market price;
b) the firm is a "price-maker", meaning, it
determines the market price;
c) the companies’ products are
differentiated;
d) input barriers are minimal, and exit barriers
are maximal.

ANSWER:D On the market with perfect
competition input barriers are minimal, and
exit barriers are maximal.

314. In perfect competition:
a) Short run abnormal profits are competed
away by firms leaving the industry
b) Short run abnormal profits are competed
away by firms entering the industry
c) Short run abnormal profits are competed
away by the government
d) Short run abnormal profits are competed
away by greater advertising

ANSWER:B In perfect competition short run
abnormal profits are competed away by
firms entering the industry


315.What is the rule that governs production
for a perfectly competitive firm?
a) Unless p < minimum MC, choose q so that
p = ATC.
b) Unless p < minimum ATC, choose q so that
p = MC.
c) Unless p < minimum AVC, choose q so
that p = MC.
d) Unless p < minimum MC, choose q so that
p = AVC.

ANSWER:C Rule that governs production for
a perfectly competitive firm is unless p <
minimum AVC, choose q so that p = MC.


316. Average revenue curve is also known as:
a) Profit curve
b) Demand curve
c) Supply curve
d) Average cost curve.

ANSWER:B In perfect competition market the
same price prevails throughout the market.
Since the price is constant hence the
demand of the commodity determines the
total revenue and average revenue. Due to
this reason the A.R. curve can also be called
as the demand curve.


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

ANSWER:D Price takers


318. Which characteristic of perfect
competition ensures that economic profit will
be zero in the long run?
a) each firm’s output is small in relation to
total market supply
b) the product is homogeneous
c) there is freedom of entry and exit in the
market
d) None of above

ANSWER:C In a perfectly competitive
industry there are almost no barriers to entry
or exit. Therefore, when a profit is made, firms
will easily enter the industry. Likewise, when

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losses are made, some firms will easily leave
the industry


319. When a firm has the power to establish
its price:
a) P = MR.
b) P = MC.
c) P > MR.
d) P < MR.

ANSWER:C When a firm has the power to
establish its price P > MR.


320. The firm can achieve equilibrium when its
a) MC = MR
b) MC = AC
c) MR = AR
d) MR = AC

ANSWER:A A profit maximizing firm in perfect
competition produces where marginal
revenue equals marginal cost

321. Which of the following is not an essential
condition of pure competition?
a) Large number of buyers and sellers
b) Homogeneous product
c) Freedom of entry
d) Absence of transport cost

ANSWER:D Pure competition is a part of
perfect competition. The essential conditions
of pure competition are: (a) Large number of
buyers and sellers(b) Homogeneous products
(c) Freedom of entry and exit of firms.


322. Which of the following is not a valid
option for a perfectly competitive firm?
a) Increasing its output.
b) Decreasing its output.
c) Increasing its price.
d) Increasing its resources.

ANSWER: C (a perfectly competitive firm are
Price taker)

323. In the perfectly competitive guidebook
industry, the market price is Rs. 35. A firm is
currently producing 10,000 guidebooks;
average total cost is Rs. 38, marginal cost is
Rs. 30, and average variable cost is Rs. 30.
The firm should:
a) raise the price of guidebooks, because
the firm is losing money.
b) keep output the same, because the firm is
producing at minimum average variable
cost.
c) produce more guidebooks, because the
next guidebook produced increases profit
by Rs. 5.
d) shut down, because the firm is losing
money.

ANSWER:C In the perfectly competitive
guidebook industry, the market price is Rs. 35.
A firm is currently producing 10,000
guidebooks; average total cost is Rs. 38,
marginal cost is Rs. 30, and average variable
cost is Rs. 30. The firm should produce more
guidebooks, because the next guidebook
produced increases profit by Rs. 5


324. The function form of the total revenue
equation for a perfectly- competitive firm:
a) Is quadratic.
b) Is cubic.
c) Is logarithmic.
d) Is linear.

ANSWER: D The function form of the total
revenue equation for a perfectly-
competitive firm is linear.


325. If a perfectly competitive firm increases
production from 10 units to 11 units, and the
market price is Rs. 20 per unit, total revenue
for 11 units is:
a) Rs. 10.
b) Rs. 20.
c) Rs. 200.
d) Rs. 220.

ANSWER: D If a perfectly competitive firm
increases production from 10 units to 11 units,
and the market price is Rs. 20 per unit, total
revenue for 11 units is Rs 220

326. A firm and industry are one and the
same under
(a) Perfect competition
(b) Duopoly
(c) Oligopoly
(d) Monopoly

ANSWER: D A firm and industry are one and
the same under Monopoly

327. A monopolist faces:
(a) An upward sloping demand curve

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(b) A perfectly elastic demand curve
(c) A downward sloping demand curve
(d) A demand curve with a positive price
elasticity of demand

ANSWER:C a monopolist faces a downward
sloping demand curve.

328. An industry is characterized by having
average total cost that decreases as output
increases. In this industry, the output can be
produced at the lowest cost if produce(s) the
total market output.
(a) many identical firms
(b) a single firm
(c) a large number of firms
(d) a few firms

ANSWER:B This industry is a decreasing-cost
industry that is best served by having a single
producer
supply the good, since a single producer can
produce the good at the lowest cost.

329. In price discrimination, which section of
the market is charged the higher price?
(a) the section with the richest people
(b) the section with the oldest people
(c) the section with the most inelastic
demand
(d) the section with the most elastic demand

ANSWER: C In price discrimination the
section with the most inelastic demand of the
market is charged the higher price

330.In contrast to perfect competition, a
monopolist charges a
(a) higher price and produces a larger
quantity.
(b) higher price and produces a smaller
quantity.
(c) lower price and produces a larger
quantity.
(d) lower price and produces a smaller
quantity.

ANSWER:B Monopolies restrict output and
charge consumers higher prices for their
product.

331. When AR = Rs 10 and AC = Rs. 8 the firm
makes ________ :
(a) Normal profit
(b) Net profit
(c)Gross profit
(d)Supernormal profit

ANSWER: D Supernormal profit refers to where
AR> AC

332. A monopolist is able to maximize his
profits when:
(a)His output is maximum
(b) He charges a high price
(c) His average cost is minimum
(d)His marginal cost is equal to marginal
revenue

ANSWER:D A monopolist is able to maximize
his profits when his marginal cost is equal to
marginal revenue

333. Which of the following is NOT a feature
of monopolistic competition?
(a) Numerous sellers
(b) Product differentiation
(c) Numerous buyers
(d) Homogenous products

ANSWER:D In monopolistic competition
Products are assumed to be differentiated.
Although the firms are competing against
each other, in monopolistic competition
there is sufficient differentiation so as to view
each firm as almost a monopoly for their own
product.

334. What qualities would ideally suit a
monopolistic firm with regard to barriers to
entry?
(a) a few impediments to limit new firms from
operating and expanding within the
market
(b) sufficient strength to prevent or
discourage potential competitors from
entering the market
(c) government rules on prices, quantities, or
conditions of entry in an industry
(d) government regulations that provide no
barriers to entry, exit, or competition

ANSWER: B The qualities would ideally suit a
monopolistic firm with regard to barriers to
entry sufficient strength to prevent or
discourage potential competitors from
entering the market

335. The MR curve cuts the horizontal line
between Y axis and demand curve into:
(a) Two unequal parts
(b) Two equal parts
(c) May be equal or unequal parts
(d) None of these

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ANSWER: B The MR curve cuts the horizontal
line between Y axis and demand curve into
Two equal parts

336. The marginal revenue curve in
monopoly:
a) Equals the demand curve
b) Is parallel with the demand curve
c) Lies below and converges with the
demand curve
d) Lies below and diverges from the demand
curve

ANSWER: D The marginal revenue curve in
monopoly lies below and diverges from the
demand curve.

337. The degree of monopoly power can be
measured by the formula
(a) P-MC/ P
(b) AR/AR-MR
(c) MR/AR-MR
(d) AAR-MR/ MR

ANSWER:A

338. In long-run equilibrium, monopoly prices
are set a level where:
(a) price exceeds marginal revenue.
(b) industry demand equals industry supply.
(c) industry demand is less than industry
supply.
(d) price exceeds average revenue.

ANSWER:A In long-run equilibrium, monopoly
prices are set a level where price exceeds
marginal revenue.

339. At the profit maximizing level of output
for a monopolist:
(a) P = AR and AR = AC
(b) P = MC and MR > MC
(c) P > MC and MR = MC
(d) P = MR and AC = MC

ANSWER:C At the profit maximizing level of
output for a monopolist P > MC and MR = MC

340. A market in which competition and entry
are restricted by the granting of a public
franchise, government license, patent, or
copyright is called a
(a) legal monopoly.
(b) natural monopoly.
(c) single-price monopoly.
(d) price-discriminating monopoly.
ANSWER:A A market in which competition
and entry are restricted by the granting of a
public franchise, government license,
patent, or copyright is called a legal
monopoly.

341. An industry in which one firm can supply
the entire market at a lower price than two or
more firms can is called a
(a) legal monopoly.
(b) natural monopoly.
(c) single-price monopoly.
(d) price-discriminating monopoly.

ANSWER:B An industry in which one firm can
supply the entire market at a lower price than
two or more firms can is called a natural
monopoly.

342. If the price elasticity of demand is
greater than 1, a monopoly’s
(a) total revenue increases when the firm
lowers its price.
(b) total revenue decreases when the firm
lowers its price.
(c) marginal revenue is negative.
(d) marginal revenue is zero.

ANSWER:A If the price elasticity of demand is
greater than 1, a monopoly’s total revenue
increases when the firm lowers its price.

343. All of the following are examples of price
discrimination EXCEPT
(a) buy-one-get-one-free offers.
(b) “early bird specials” at a restaurant.
(c) lower ticket prices for matinee
performances.
(d) “buy now, pay later” payment options.

ANSWER:D Examples of Price discrimination:
1. Time of Purchase 2. Airline travel and time
of departure 3. Quantity Purchased 4.
Coupons 5. Age Discounts6. Means-tested
student fees 7. Resident parking charges 8.
Dutch auction for Car registration plates 9.
Loyalty cards 10. Choosing your seat early 11.
Three for Two offers

344.In monopoly when abnormal profits are
made:
(a) The price set is greater than the average
cost
(b) The price is less than the marginal cost
(c) The average revenue equals the marginal
cost
(d) Revenue equals total cost

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ANSWER:A In monopoly when abnormal
profits are made the price set is greater than
the marginal cost.

345. Which of the following is the least
competitive market structure?
(a) Perfect competition
(b) Monopolistic competition
(c) Oligopoly
(d) Monopoly

ANSWER:D Monopoly is the least competitive
market structure

346. If the demand for its product is elastic, a
monopoly’s
(a) total revenue is unchanged when the firm
lowers its price.
(b) total revenue decreases when the firm
lowers its price.
(c) marginal revenue is positive.
(d) marginal revenue is zero.

ANSWER:C If the demand for its product is
elastic, a monopoly’s marginal revenue is
positive.

347. Monopolies can earn an economic
profit in the long run because of
(a) rent seeking by competitors.
(b) the elastic demand for the monopoly’s
product.
(c) the cost-savings gained by the monopoly.
(d) barriers to enter the monopoly’s market.

ANSWER:D Monopolies can earn an
economic profit in the long run because of
barriers to enter the monopoly’s market.

348. Firms face competition when the good
they produce
(a) is in a market with natural barriers to entry.
(b) is unique.
(c) is in a market with legal barriers to entry.
(d) has a close substitute.

ANSWER: D Firms face competition when the
good they producehas a close substitute.

349.Which of the following goods is the best
example of a natural monopoly?
(a) natural gas
(b) diamonds
(c) a patented good
(d) first-class mail

ANSWER:A natural gas is the best example of
a natural monopoly

350. The total revenue curve for a monopolist
will
(a) start high, rise, and then decline.
(b) start low, decline, and then rise.
(c) start high, decline, and then rise.
(d) start low, rise, and then decline.

ANSWER:D The total revenue curve for a
monopolist will start low, rise, and then
decline.

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1. What is the shape of the Keynesian
Aggregate Supply before the level of full
employment is attained?
(A) Perfectly inelastic
(B) Perfectly elastic
(C) Unitary elastic
(D) More elastic
Answer: (B) Perfectly elastic

2. According to classical economists, real
wage rate is ______ to the Marginal
Productivity of Labour.
(A) Equal
(B) More
(C) Less
(D) None of these
Answer: (A) Equal

3. What is the cause of Keynesian perfectly
elastic Aggregate Supply curve?
(A) Wage price rigidity
(B) Constant Marginal Product of Labour
(C) Both of these
(D) None of these
Answer: (C) Both of these

4. According to classical economists, there
always exists ______ equilibrium in the
economy.
(A) Full employment
(B) Underemployment
(C) Over full employment
(D) None of these

Answer: (A) Full employment

5. What will be APC when APS = 0?
(A) One
(B) Zero
(C) Two
(D) Infinite
Answer: (A) One

6. If the income is ₹ 400 crores and
consumption is ₹ 250 crores, what will be the
APC?
(A) 0.67
(B) 0.63
(C) 0.60
(D) 0.58
Answer: (B) 0.63

7. What is a fiscal measure of correcting
deficient demand?
(A) Increase in public expenditure and
decrease in taxes
(B) Decrease in public debt
(C) Deficit financing
(D) All of these
Answer: (D) All of these

8. Which is the measure of correcting excess
demand?
(A) Deficit financing
(B) Reduction in taxes
(C) Increase in public expenditure
(D) Increase in public debt
Answer: (D) Increase in public debt

9. Suppose in a hypothetical economy, the
income rises from ₹ 5,000 crores to ₹ 6,000
crores. As a result, the consumption
expenditure rises from ₹ 4,000 crores to ₹ 4,600
UNIT – 5
Consumption Function and Investment Function: Introduction,
Consumption Function, Investment Function, Marginal efficiency of capital
and business expectations, Multiplier, Accelerator. Business Cycle:
Introduction, Meaning and Features, Theories of Business Cycles, Measures to
Control Business Cycles, Business Cycles and Business Decisions.

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crores. Marginal propensity to consume in
such a case would be ______
(A) 0.8
(B) 0.4
(C) 0.2
(D) 0.6
Answer: (D) 0.6

10. On the basis of government law, the
compulsory payment made by the public is
known as _________
(A) Expenditure
(B) Investment
(C) Tax
(D) Subsidy

Answer: (C) Tax

11. Which among is the direct tax?
(A) Income tax
(B) Gift and Corporation tax
(C) Wealth tax
(D) All of these
Answer: (D) All of these

12. The value of multiplier is:
(A) 1/MPC
(B) 1/MPS
(C) 1/1−MPS
(D) 1/MPC−1
Answer: (B)
13. If MPC = 1, the value of the multiplier is:
(A) 0
(B) 1
(C) Between 0 and 1
(D) Infinity
Answer: (D) Infinity

14.Aggregate demand can be increased
by:
(A) increasing bank rate
(B) selling govt, securities by RBI
(C) increasing cash reserve ratio
(D) none of these
Answer: (D) None of these

15. If the marginal propensity to consume is
greater than the marginal propensity to save,
the value of the multiplier will be
(A) greater than 2
(B) less than 2
(C) equal to 2
(D) equal to 5

Answer: (A) greater than 2

16. Supply creates its own Demand. Who
gave this law?
(a) J.B.Say
(b) J.S.Mill
(c) Keynes
(d) Ricardo
Answer: (a) J.B.Say

17.Who is the author of the book ‘General
Theory of Employment, Interest, and Money’?
(a) A.C. Pigou
(b) Malthus
(c) J.M. Keynes
(d) Marshall

Answer: (c) J.M. Keynes

18. Which of the following is true for the
Classical Theory of Employment?
(a) State of full employment in the economy
(b) No possibility of over-or under-production
in the economy
(c) Both (a) and (b)
(d) None of the above

Answer: (c) Both (a) and (b)

19. On which factor Keynesian Theory of
Employment depends?
(a) Effective Demand
(b) Supply
(c) Production Efficiency
(d) None of the above

Answer: (a) Effective Demand

20.Which is the determining factor for
investment?
(a) Marginal Efficiency of Capital
(b) Interest Rate
(c) Both (a) and (b)
(d) None of these
Answer: (c) Both (a) and (b)

21.According to Keynes, investment implies:
(a) Financial Investment
(b) Real Investment
(c) Both (a) and (b)
(d) None of the above

Answer: (b) Real Investment

22.With the increase in investment, MEC:
(a) Rises
(b) Falls
(c) Remains Constant
(d) None of these

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Answer: (b) Falls

23.Which of the following is a Read
Investment?
(a) Purchasing of a Share
(b) Purchasing of Old Factory
(c) Construction of Buildings
(d) Opening Deposit Account in the Bank

Answer: (c) Construction of Buildings

24.APC + APS = ?
(a) ?
(b) 2
(c) 1
(d) 0

Answer: (b) 2

25.MPC = MPS = ?
(a) ?
(b) 2
(c) 1
(d) 0
Answer: (c) 1

26.Which or is true?
(a) MPC + MPS = 0
(b) MPC + MPS < 1
(c) MPC + MPS = 1
(d) MPC + MPS > 1
Answer: (c) MPC + MPS = 1

27.The main component of aggregate
demand is:
(a) Individual consumption
(b) Public consumption
(c) Investment
(d) All the above

Answer: (d) All the above

28.Who is the writer of the book, “Trained
Economic Politique”?
(a) Pigour
(b) J.B. Say
(c) Keynes
(d) Ricardo

Answer: (a) Pigour

29. IF MPC = 0.5, then Multiplier (k) will be:
(a) 1/4
(b) = 0
(c) 1
(d) 2

Answer: (d) 2

30.On which concept does classical
viewpoint depend?
(a) Say’s Law of Market
(b) perfect Flexibility of Wage Rate
(c) Perfect Flexibility of Interest Rate
(d) All of these

Answer: (d) All of these

31.“Wage cut maintains full employment in
the economy.” Who put forward this view?
(a) Pigou
(b) Keynes
(c) Marshall
(d) None of the above

Answer: (a) Pigou

32.Which one of the following is the
determining factor of Equilibrium Income is
the Keynesian Viewpoint?
(a) Aggregate Demand
(b) Aggregate Supply
(c) Both (a) and (b)
(d) None of the above
Answer: (c) Both (a) and (b)

33.In Keynesian viewpoint, the equilibrium
level of income and employment in the
economy will be established where:
(a) AD > AS
(b) AS > AD
(c) AD = AS
(d) None of these

Answer: (c) AD = AS

34.According to the saving-investment
viewpoint, income employment equilibrium
will be determined at a point where:
(a) S > I
(b) I > S
(c) S = I
(d) None of these

Answer: (c) S = I

35.An increase in aggregate demand of
equilibrium level of income and employment
causes an increase in:
(a) Employment
(b) Production
(c) Income
(d) All of these
Answer: (d) All of these

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36.Which one is correct?
(a) Y = C + I
(b) Y = 0 = N
(c) C + S = C + I
(d) All of these

Answer: (d) All of these

37.Keynes theory is associated with :
(a) Effective demand
(b) Propensity to consume
(c) Propensity to save
(d) All of these

Answer: (d) All of these

38.Keynesian multiplier establishes a
relationship between:
(a) Investment and Income
(b) Income and Consumption
(c) Saving and Investment
(d) None of the above

Answer: (a) Investment and Income

39. Which one is correct?
(a) K = 1/ MPC
(b) K = 1/ MPS
(c) K = 1/ 1−MPS
(d) K = 1/ 1+MPS
Answer: (b)

40. Multiplier can be expressed as:
(a) K = ΔS/ ΔI
(b) K = ΔY/ ΔI
(c) K = I – S
(d) None of these

Answer
Answer: (b)

41. Keynes derived Investment Multiplier
from Kahn’s :
(a) Income Multiplier
(b) Consumption Multiplier
(c) Employment Multiplier
(d) None of the above
Answer: (c) Employment Multiplier

42.The value of Keynesian Investment
Multiplier depends on:
(a) Income Level
(b) Marginal Productivity of Capital
(c) Marginal Propensity to Consume
(d) Investment Level
Answer: (c) Marginal Propensity to Consume

43. Which factor affects Keynesian
Multiplier?
(a) Marginal Propensity to Save
(b) Marginal Propensity to Consume
(c) Both (a) and (b)
(d) None of the above

Answer: (c) Both (a) and (b)

44.Which of the following is correct?
(a) MPC and multiplier have a direct
relationship
(b) MPS and multiplier have an inverse
relationship
(c) Both (a) and (b)
(d) None of the above
Answer: (c) Both (a) and (b)

45. The value of MPC is:
(a) 1
(b) 0
(c) Greater than 0 but less than 1
(d) ?
Answer: (c) Greater than 0 but less than 1

46.If MPC = 0.5, then multiplier (K) will be:
(a) 1/2
(b) 1
(c) 2
(d) 0

Answer: (c) 2

47.If MPC = 0.5 and initial investment is 100
Rs crores, the income generation in the
economy will be :
(a) 5 crores Rs
(b) 100 crores Rs
(c) 200 crores Rs
(d) 500 crores Rs

Answer: (c) 200 crores Rs

48. ‘The theory of employment multiplier was
propounded by:
(a) Keynes
(b) Kahn
(c) Hansen
(d) Marshall

Answer: (b) Kahn

49. If income equilibrium level in the
economy is determined at the level before
full employment, it is known as the state of:
(a) Deficit Demand

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(b) Surplus Demand
(c) Partial Demand
(d) None of these
Answer: (a) Deficit Demand

50.In Keynesian economics, the state of
Deficit Demand is called as:
(a) Full Employment Equilibrium
(b) Under Full Employment Equilibrium
(c) Both (a) and (b)
(d) None of the above

Answer: (b) Under Full Employment
Equilibrium

51.What are the characteristics of Deficit
Demand?
(a) Aggregate Demand falls short of
Aggregate Demand required at full
employment
(b) Aggregate Demand remains short of
Aggregate Supply required of full
employment level
(c) Both (a) and (b)
(d) None of above
Answer: (c) Both (a) and (b)

52. Deflationary Gap shows the
measurement of:
(a) Deficit Demand
(b) Surplus Demand
(c) Full Employment
(d) None of these

Answer: (a) Deficit Demand

53. Which one is the reason for appearing
Deficit Demand condition?
(a) Fall in the money supply in the country
(b) Fall in investment demand as a result of
rising in bank rate
(c) Fall in disposable income and consumer
demand due to increase in taxes
(d) All the above
Answer: (d) All the above

54.Which of the following is true?
(a) Employment level declines due to
decrease in demand
(b) Price level falls due to deficient demand
in the country
(c) Production level falls deficient demand
(d) All the above
Answer: (d) All the above

55.The ‘difference between the Aggregate
Demand at above full employment and
Aggregate Demand at full employment is
known as:
(a) Inflationary Gap
(b) Deflationary Gap
(c) Both (a) and (b)
(d) None of the above
Answer: (a) Inflationary Gap

56. Which of the following is a reason for
surplus demand?
(a) Increase in Public Expenditure
(b) Increase in Money Supply
(c) Fall in Taxes
(d) All the above

Answer: (d) All the above

57. In the situation of the deflationary gap:
(a) Demand increases rapidly
(b) Supply increase rapidly
(c) Both demand and supply are equal
(d) All of these
Answer: (d) All of these

58. Which of the following causes the trade
cycle?
(a) Deflationary Conditions
(b) Inflationary Conditions
(c) Both (a) and (b)
(d) None of these

Answer: (c) Both (a) and (b)

59.Which one is the corrective measure for
Deficient Demand?
(a) Fiscal Measures
(b) Monetary Measures
(c) Both (a) & (b)
(d) None of the above

Answer: (c) Both (a) & (b)

60.Which measure is included in Fiscal
Measures?
(a) Public Expenditure
(b) Taxation
(c) Public Debt
(d) All of these

Answer: (d) All of these

61.Which fiscal measure should be adopted
for correcting Deficient Demand?
(a) Government should spend more on
public works
(b) Taxation should be reduced
(c) Pubic debt should be reduced

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(d) All the above

Answer: (d) All the above

62.With which component of Monetary
Policy, Central Bank tries to attain economic
stability in the country?
(a) Supply of Money
(b) Interest Rate
(c) Availability of Money
(d) All of these

Answer: (d) All of these

63. Which method Central Bank adopts for
controlling quantitative credit?
(a) Bank Rate
(b) Open Market Operations
(c) Change in Cash Reserve Ratio
(d) All the above
Answer: (d) All the above

64. Which is a qualitative method of
controlling credit?
(a) Change in Margin Requirements of
Loanee
(b) Credit Rationing
(c) Direct Action
(d) All of these
Answer: (d) All of these

65.Which monetary measure may be
adopted to correct Deficient Demand?
(a) Reduction in Bank Rate
(b) Buying Securities in Open Markey
(c) Reducing Cash Reserve Ratio
(d) All the above

Answer: (d) All the above

66. Which fiscal measure is to be adopted in
correcting the Inflationary Gap?
(a) Reduction in Public Expenditure
(b) Increase in taxes
(c) Increase in Public debt
(d) All of these

Answer: (d) All of these

67.Which monetary measure is to be
adopted in correcting Inflationary
(a) Increase in Bank Rate
(b) Selling of Securities in Open Market
(c) Increase in Cash Reserve Ratio
(d) All the above
Answer: (d) All the above

68.Income and employment are
determined by:
(a) Total demand
(b) Total supply
(c) Total demand and total supply both
(d) By market demand
Answer: (c) Total demand and total supply
both

69. The relation between consumption and
savings are:
(a) Inverse
(b) Direct
(c) Inverse and direct both
(d) Neither inverse nor direct.

Answer: (a) Inverse

70.When an economy they’re to save all its
extra income then investment calculation will
be:
(a) 1
(b) Uncertain
(c) 0
(d) Infinite
Answer: (a) 1

71.“Supply creates its own demand”. This
statement was given by the economist:
(a) Keynes
(b) Pigou
(c) J. B.Say
(d) Adam Smith
Answer: (c) J. B.Say

72.The classical theory is based on the
assumption of:
(a) Say’s the law of market
(b) Flexibility in wage rates
(c) Flexibility in interest rate
(d) All of the above
Answer: (d) All of the above.

Q. 73. The French economist Jean-Baptiste
Say transformed the equality of total output
and total
spending into a law that can be expressed as
follows:
a. Unemployment is not possible in the short
run.
b. Demand and supply are never equal.
c. Supply creates its own demand.
d. Demand creates its own supply.
Answer:C

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Q74. The classical economists argued that
the production of goods and services
(supply) generates
an equal amount of total income and, in
turn, total spending. This theory is called:
a. Keynes' General Theory.
b. Say's Law.
c. The "animal spirits" theory.
d. The law of autonomous consumption.
Answer:B

Q. 75. Which of the following statements is
true about Say's law?
a. It states that supply creates its own
demand.
b. It states that demand creates its own
supply.
c. It states that total output will always
exceed total spending.
d. It states that consumption spending is the
most volatile component of
aggregate expenditures.
Answer: A

Q. 76. The school of thought that emphasizes
the natural tendency for an economy to
move toward
equilibrium full employment without inflation
is known as the:
a. Keynesian school.
b. Supply- side school.
c. Non-interventionist school.
d. Classical school.
Answer:D

Q .77. According to Keynes, what is the most
important determinant of households'
spending on
goods and services?
a. The price level.
b. The interest rate.
c. Autonomous consumption.
d. Disposable income.

Answer:D

Q.78. The consumption function shows the
relationship between consumer expenditures
and:
a. The interest rate.
b. The tax rate.
c. Savings.
d. Disposable income.

Answer:D

79. Which of the following statements is true
concerning the consumption function?
a. It slopes upward.
b. Its slope equals the MPC.
c. It represents the direct (positive)
relationship between consumption spending
and the level of real disposable income.
d. All of the above.
Answer:D

80. The consumption function shows the
relationship between consumption and:
a. Interest rates.
b. Saving.
c. Price level changes.
d. Disposable income.
Answer:D

91. At the point where the disposable income
line intersects the consumption function,
saving:
a. equals consumption.
b. equals disposable income.
c. is less than zero.
d. is equal to zero.
Answer:D

92. Autonomous consumption is consumption
that:
a. varies directly with disposable income.
b. varies inversely with disposable income.
c. is independent of the level of disposable
income.
d. is constant at first and then varies with
disposable income.

Answer:C

93. Autonomous consumption is equal to the
level of consumption associated with:
a. unstable disposable income.
b. positive disposable income.
c. zero disposable income.
d. negative disposable income.
Answer:C

94. The relationship between consumer
expenditures and disposable income is the:
a. Savings function.
b. The tax rate function.
c. Disposable income function.
d. Consumption function.
Answer:D

95. Given the consumption function C = $100
billion + 0.75 ($300 billion), autonomous
consumption is equal to:

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a. $100 billion.
b. $225 billion.
c. $300 billion.
d. $325 billion.

Answer:A

96. That part of disposal income not spent on
consumption is defined as:
a. transitory disposable income.
b. permanent disposable income.
c. disposal income.
d. saving.
Answer:D

97. If disposal income is $400 billion,
autonomous consumption is $60 billion, and
MPC is 0.8, what is the level of saving?
a. $20 billion.
b. $210 billion.
c. $380 billion.
d. $590 billion.
e. $780 billion.

Answer:A

98. The marginal propensity to consume
(MPC) is computed as the change in:
a. consumption divided by the change in
savings.
b. consumption divided by the change in
disposable personal income.
c. consumption divided by the change in
GDP.
d. None of the above.
Answer:B

99. The marginal propensity to consume
(MPC) is the slope of the:
a. GDP curve.
b. disposable income curve.
c. consumption function.
d. autonomous consumption curve.

Answer:C

100. The slope of the consumption function is
called the:
a. autonomous consumption rate.
b. marginal consumption rate.
c. average propensity to consume.
d. marginal propensity to consume.

Answer:D

101. The change in consumption divided by a
change in disposable income is defined as:
a. the marginal propensity to consume.
b. autonomous consumption.
c. the consumption function.
d. Keynes' absolute disposable income
hypothesis.
Answer:A

102. The marginal propensity to consume is:
a. the change in disposable income divided
by the change in consumption.
b. consumption spending divided by
disposable income.
c. disposable income divided by
consumption spending.
d. the change in consumption divided by the
change in disposable income.
e. the change in consumption divided by
disposable income.

Answer:D

103. The marginal propensity to consume
measures the ratio of the:
a. average amount of our disposable income
that we spend.
b. average amount of our savings that we
spend.
c. change in consumer spending to a
change in money holdings.
d. change in consumer spending to a
change in disposable income.

Answer:D

104. The marginal propensity to save (MPS) is
computed as the change in:
a. savings divided by the change in saving.
b. savings divided by the change in
disposable personal income.
c. saving divided by the change in GDP.
d. None of the above.

Answer:B

105. If your disposable personal income
increases from $30,000 to $40,000 and your
savings
increases from $2,000 to $4,000, your marginal
propensity to save (MPS) is:
a. 0.2.
b. 0.4.
c. 0.5.
d. 0.8.

Answer:A

106. The marginal propensity to save is:

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a. the change in saving induced by a
change in consumption.
b. (change in S) / (change in Y).
c. 1 - MPC / MPC.
d. (change in Y - bY) / (change in Y).
e. 1 - MPC.
Answer:B

107. If the marginal propensity to consume =
0.75, then:
a. the marginal propensity to save = 0.75.
b. the marginal propensity to save = 1.33.
c. the marginal propensity to save = 0.20.
d. the marginal propensity to save = 0.25.

Answer:D



Diagram- 1 Consumption function


108. As shown in Diagram 1, autonomous
consumption is:
a. 0.
b. $2 trillion.
c. $4 trillion.
d. $6 trillion.

Answer:B

Diagram- 2 Disposable income and
consumption data


109. As shown in Diagram- 2, if disposable
income is $100 billion, saving is:
a. $100 billion.
b. $75 billion.
c. -$75 billion.
d. -$175 billion.
Answer: C

110. Psychological law of consumption has
been given by-----
a. J. M. Keynes b. J. S. Duesenberry
c. Ando A. Modigliani d. Friedman
Answer:A

111. The absolute income theory of
consumption has been given by-----
a. J. M. Keynes b. J. S. Duesenberry
c. Ando A. Modigliani d. Friedman
Answer:A

112. Relative income theory of consumption
has been given by-----
a. J. M. Keynes b. J. S. Duesenberry
c. Ando A. Modigliani d. Friedman
Answer:B

Diagram- 3 Consumption function



113. As shown in Diagram- 3, autonomous
consumption is:
a. 0.
b. $1 trillion.
c. $2 trillion.
d. $3 trillion.
Answer:B

114. As shown in Diagram 3, the marginal
propensity to consume (MPC) is:
a. 0.25.
b. 0.50.
c. 0.75.
d. 0.90.
Answer:B

115. Marginal Propensity to Consume is

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(a) Increase in consumption due to one unit
increase in income.
(b) Total consumption divided by total
income.
c) Both (a) and (b).
(d) Neither (a) nor (b).

Answer:A


116. Assume that the consumption function is
of the form, C= 50+.8Y. If income is Rs 1000/-
then consumption is,-
(a) Rs 50/-
b) Rs 1050/-
c) Rs 50/-
(d) Rs 850/

Answer: D

117. In the simple Keynesian model
consumption is a function of,
(a) Rate of interest.
(b) Level of income.
c) Price level.
(d) None of the above.

Answer: B


118. In the simple Keynesian model
investment is
(a) Fixed.
(b) A function of level of income.
( c) Either fixed or a function of level of
income.
(d) None of the above.
Answer: C

119. Which of the following statement is
incorrect,-
In simple Keynesian model,-
(a) MPC+MPS=1
(b) APC+ APS=1
( c) Both (a) and (b)
(d) Neither (a) nor (b).
Answer: D

120. In simple Keynesian model, stability of
equilibrium exists, if
(a) APC is less than one.
(b) APS is less than one.
( c) MPC is less than one.
(d) None of the above.
Answer: A

121. Keynesian analysis is
(a) A short run analysis.
(b) Long run analysis.
( c) Both short and long run analysis.
(d) Neither short nor long run analysis.
Answer: A

122. The average propensity to consume is
measured by
(a) C/Y
(b) C=Y
( c) Y/C
(d) C+Y
Answer: A

123. An increase in marginal propensity to
consume will
(a) Lead to the consumption function
becoming steeper.
(b) Shift the consumption function upwards.
( c) Shift the consumption function
downwards.
(d) Shift the savings function upwards.
Answer: A

124. If the Keynesian consumption function is,
C=10+.8Y, if income is Rs 1000/- what is total
consumption.
(a) Rs .8/-
(b) Rs 800/-
( c) Rs 810/-
(d) Rs .81/-
Answer: C

125. An increase in consumption at any given
level of income will lead to
(a) Higher aggregate demand.
(b) An increase in exports.
( c) A fall in taxation revenue.
(d) A decrease in import spending.
Answer: A

126. Lower interest rates are likely to
(a) Decrease consumption.
(b) Increase cost of borrowing.
( c) Encourage saving.
(d) Increase borrowing and spending.

Answer: D

127. The marginal propensity to consume is
equal to
(a) Total spending/Total consumption
(b) Total consumption/ Total income.
( c) Change in consumption/ Change in
income
(d) Change in consumption/ Change in
savings.

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Answer: C

128. An increase in investment is caused by
(a) Lower interest rates
(b) Expectations of lower national income
( c) A decrease in the marginal propensity to
consume
(d) An increase in withdrawals

Answer: A

129. An increase in interest rates
(a) is likely to reduce savings
(b) is likely to reduce external value of
currency
( c) Leads to a shift in the MEC schedule
(d) Leads to a movement along MEC
schedule.

Answer: D

130. Which of the following are not
characteristics of Keynesian consumption
function?
(a) The main influence on consumption in the
short run is current disposable income
(b) The marginal propensity to consume is less
than one
( c) The average propensity to consume
decreases as income increases
(d) The average propensity to consume
increases as income increases.

Answer: D

131 .An increases in investment is most likely
to be caused by
(a) Lower interest rates
(b) Expectations of lower national incomes
( c) A decrease in the marginal propensity to
consume
(d) An increase in withdrawals.

Answer: A

132 .A profit maximizing firm will invest up to
the level of investment where
(a) The cost of borrowing equals marginal
efficiency of capital
(b) The cost of borrowing is greater than
marginal efficiency of capital
( c) The cost of borrowing is less than
marginal efficiency of capital
(d) The cost of borrowing is equal to marginal
propensity to consume.

Answer: A

133. Investment is
(a) An injection that increases aggregate
demand
(b) An withdrawal that increases aggregate
demand
( c) An injection that decreases aggregate
demand
(d) An withdrawal that decreases aggregate
demand

Answer: A

134. If an increase in investment leads to a
bigger increase in national income
(a) Accelerator
(b) Aggregate demand
( c) Monetarism
(d) Multiplier

Answer: D

135. The difference between gross investment
and net investment is
(a) Depreciation
(b) Acceleration
( c) Deceleration
(d) Capital investment
Answer: A

136 .Induced investment depends on
(a) Price level and rate of interest
(b) Level of income and rate of interest
( c) Level of employment and wage rate
(d) Price level and wage rate.
Answer: B


137. According to Keynes what causes
changes in inducement to invest by
entrepreneurs?
A. MPC and MEI
B. MEC and MPS
C. MEC and rate of interest
D. MPC and rate of interest

Answer: C

138. The deficiency of aggregate demand
during depression period leads to
A. Seasonal unemployment
B. Voluntary unemployment
C:Involuntary unemployment
D: Frictional unemployment
Answer: C

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139. In Keynesian model of income
determination autonomous investment
occurs due to
A. Change in income
B. Change in employment
C. Change in profit
D. Change in social welfare programmes

Answer: D

140. Early Keynesian economists’ view is
A. Money alone matters
B. Money does not matters
C. Money partly matters
D. None of the above
Answer: B

141. The balanced budget multiplier in the
Keynesian Cross Model is
a. Equal to one.
(b) greater than one.
(c) less than one
d. None of these
Answer: A

142. The concept of multiplier was first
developed by
a. J M Keynes
b. F A Khan
c. J D Clark
d. Samuelson
Answer: B

143. Which among the following does not
have the application of multiplier
a. Determination of income
b. Fiscal policy
c. Monetary policy
d. Foreign direct investment
Answer: C

144. Under Keynes Psychological law of
consumption the relationship between
consumption and income is
a. Linear and proportional
b. Non-linear and proportional
c. Linear and non-proportional
d. Nonlinear and non-proportional Both C &D
Answer: B

145. In equation C= a+by, the value of b lies
between
a. 0<b<1
b. 0>b<1
c. 0=b<1
d. 0>b<1
Answer: A

146. The relation between APC and MPC in
Keynes Psychological consumption function is
a. MPC<APC
b. MPC=APC
c. MPC>APC
d. None of the above

Answer: A

147. Under Keyne’s consumption function
consumption is a _______ function of income
a. Unstable
b. Inverse
c. Stable
d. Neutral
Answer: C

148. Which among the following is not a
feature of Keynesian theory?
a. Short run
b. Wage price flexibility
c. Fiscal policy
d. Underemployment equilibrium
Answer:B

149 Macroeconomics is concerned with:
a)The level of output of goods and services
b) The general level of prices
c) The growth of income
D) All the above
Answer: D

150. Which of the following is NOT a stock
variable?
a)Capital
b) Wealth
c) Interest
d) Saving
Answer: D

151 The word Macro was first used in
Economics by:
a) Keynes
b)Marshall
c)Ragnar Frisch
d) J.R. Hicks
Answer: C

152. Two sector economy consists of:
a)Households, firms
b) Households, Government
c)Firms, Foreign sector
d) Firms, Government.
Answer: A

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153. Which of the following is the
consumption sector?
a)Household
b)Firm
c)Government
d)Foreign

Answer: A


154. Which of the following is true for
“Consumption”?
.A. Total spending made by the household
sector at a given level of income is called
consumption.
B. The functional relationship between
consumption and level of income is the
consumption function.
C. Both A&B
D. None

Answer: C

155. Which of the following is true for
“Savings”?
A. The income remaining from the
household sector after all consumption has
taken place.
B. The functional relationship between
savings and the level of income is the savings
function.
C. Both A&B
D. None
Answer: C

156 Identify what is correct for Keynes’
Psychological Law –
A. People increase their consumption as
their income increases, but not by as much
as their income increases.
B. Aggregate consumption can increase
due to increased aggregate income, but the
increase in aggregate consumption will be
less than the increase in income.
C. What isn’t spent on consumption is
saved.
D. All of the above

Answer: D
157. Determinants of the consumption
function include:
I. Real income
II. Distribution of wealth
III. Expectations of price changes
IV. Changes in Fiscal Policy
V. Changes in Interest Rates

A. All of the above
B. (I) and (IV) only
C. (II) (III) and (V) only
D. None

Answer: A

158. The proposed mathematical formula
for Keynesian theory of consumption is:

A. Y =a + bX
B. C =a + bY
C. C =a – bX
D. None

Answer: B

159. The extra consumption resulting from
an increase in income is called___________.

A. Induced consumption
B. Real disposable income
C. Autonomous spending
D. None
Answer: A

160. The consumption at a given level of
income is made up of ____________ the
amount of which depends on the marginal
propensity to consume.

A. Consumer spending plus the Induced
spending
B. Autonomous spending plus the
Induced spending
C. Real disposable income plus
Autonomous spending
D. None
Answer: B

161. The Keynesian consumption function
(C =a+ bY) is an equation of a straight.
Identify which of the following is true.

A. It follows that an increase in income
leads to an increase in total consumer
demand.
B. This suggests that as income rises,
consumer spending will rise.
C. Both A&B
D. None

Answer: C

162. How a Shifts in the consumption curve
is possible?

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A. Changes in some variables (e.g.
interest rate)
B. Changes in real disposable income
C. Both A&B
D. None

Answer: A

163 Types of investment that exist within the
macroeconomy include:

A. Autonomous investment
B. Induced investment
C. Both A&B
D. None
Answer: C


164. Which of the following is true for
Autonomous investment –

A. Investment that is motivated by the
wellbeing to society that it delivers.
B. This type of investment is independent
of the level of income and aggregate
demand.
C. This type of investment is ordinarily
undertaken by public bodies, or private
organisations not pursuing profit
D. All of the above
Answer: D

165. Which of the following is true for
Induced investment –

A. Investment that is motivated by the
margin of profit that it delivers.
B. Investment that is dependent on the
level of income.
C. This type of investment is associated
with private enterprise in pursuit of maximising
profit.
D. All of the above

Answer: D

166. Keynes stated factors that determined
the level of investment in an economy are:
A. Marginal Efficiency of Capital
B. Market rate of interest
C. Both A&B
D. None
Answer: C

167. Marginal efficiency of capital (MEC) –

A. The rate of discount which makes the
present value of the prospective yield from
the capital asset equal to its supply price.
B. The rate at which a firm or household
must pay for funds in the present, which will
be paid back in the future. This rate is
expressed as a percentage of the principal.
C. Both A&B
D. None

Answer: A

168. Market rate of interest –

A. The rate of discount which makes the
present value of the prospective yield from
the capital asset equal to its supply price.
B. The rate at which a firm or household
must pay for funds in the present, which will
be paid back in the future. This rate is
expressed as a percentage of the principal.
C. Both A&B
D. None

Answer: B

169. The Marginal Efficiency of Capital
(MEC) can shift outwards if the expected rate
of return increases. Identify from the
following, reasons that could cause this in
Short Run:

A. Demand for the good
B. Change in income
C. Current rate of investment
D. All of the above

Answer: D

170. The Marginal Efficiency of Capital
(MEC) can shift outwards if the expected rate
of return increases. Identify from the
following, reasons that could cause this in
long Run:

A. Population growth
B. Technological development
C. Quantity of capital goods already in
existence
D. All of the above

Answer: D

171. The Consumption would fall for a
number of reasons. From the following
identify such reasons:

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A. High interest rates encourage people
to save. This would put a downward pressure
on consumption.
B. High interest rates would result in lower
disposable income for those people with
loans and mortgages.
C. High interest rates make it more
expensive to borrow. This would reduce
consumption.
D. All of the above

Answer: D

172. The Consumption would rise for a
number of reasons. From the following
identify such reasons:

A. Low interest rates discourage saving.
B. Low interest rates result in higher
disposable income for those people with
loans and mortgages.
C. High interest rates make it less
expensive to borrow. This would increase
consumption.
D. All of the above

Answer: D


173. Which of the following is true for Multiplier
effect?
A. The number by which a change in
investment must be multiplied to result in the
final change of total output.
B. The concept proposes that an
increase in private investment can increase
output and employment, and a decrease in
investment will cause it to contract.
C. The term multiplier is used to show that
the spending done to boost investment has
an amplified effect on output.
D. All of the above
Answer: D

174. Which of the following is true for
Marginal rate of tax on income?
A. The percentage of income that is paid
to the government in the form of tax.
B. It is also known as the marginal
propensity of tax (MPT)
C. Both A&B
D. None
Answer: C

175. Factors and assumptions underlying
Multiplier effect include:

A. Marginal Propensity to Consume –
How much of income generated through the
investment will be spent on other goods and
services in the economy.
B. Tax rate – How much of this income
will be returned to the government in the
form of tax.
C. Fall in the aggregate demand
D. All of the above

Answer: D

176. The limitations of Multiplier effect
include:
A. Elasticity of supply – despite an equal
increase in aggregate demand, the overall
effect on output is not the same.
B. Time lag – i.e. when the initial
investment will be made, and when the full
effects of the multiplier will be felt.
C. Both A&B
D. None
Answer: C

177. In an open economy, the value of the
multiplier depends on:

A. The marginal propensity to save
B. The marginal propensity to import
C. The level of taxes
D. All of the above
Answer: D


177. Which of the following is true for
Accelerator effect?
A. Investment levels in an economy are
positively related to a change in the rate of
GDP
B. It looks at what effect a change in the
level of output will have on the rate of
investment.
C. If output increases, then firms will have
to invest more in order to maintain a higher
output.
D. All of the above

Answer: D

178. Assumptions of the principle of
accelerator include:
A. Real profits move with the aggregate
output.
B. Resources are considered to be elastic
so that investment in new capital goods can
be undertaken easily.

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C. Money supply especially credit money
is considered to be elastic so that funds for
induced investment are readily available.
D. All of the above
Answer: D

179. Limitations of the accelerator theory
include:
A. The time and resources to adjust levels
of capital stock are not considered in the
simple model.
B. There may be spare capacity within
the firm which means it does not need to
increase net investment by such a large
amount – its existing resources could
manage.
C. Both A&B
D. None
Answer: C


180. Important factors that limit the
significance of the multiplier include:

A. It is relevant to a demand-deficient
economy with high unemployment of
resources. If there is full employment, any
increase in demand will lead to inflation
rather than a growth in the economy.
B. The leakages from the circular flow of
income might make the value of the
multiplier very low.
C. There may be a long period of
adjustment before the benefits of the
multiplier are felt.
D. All of the above

Answer: D

181. All of the following are correct EXCEPT.
A. The accelerator also works in reverse.
A decline in demand for consumer goods will
result in a much sharper decline in demand
for the capital goods which make them.
B. The accelerator implies that
investment, and hence national income,
remain high only as long as consumption is
rising.
C. The accelerator comes into effect as a
consequence of changes in the rate
National income.
D. None
Answer: C

182. Which of the following factor is not
used in the multiplier formula for the open
economy?

A. Marginal propensity to save
B. Marginal propensity to import
C. Marginal propensity to tax
D. Marginal propensity to export
Answer: D

183. The concept of the Multiplier discusses:
A. Savings and investments
B. Income and investments
C. Income and expenditure
D. Income and savings
Answer: B

184. In an economy where, out of every
extra £100 of national income, £25 is paid in
tax, £10 is spent on imports and £15 is saved,
the value of the multiplier will be
1.
A. 2
B. 5
C. 5
D. 10
Answer: A


185. Which of the following is the basic
concept which underlies the accelerator
theory of investment?
A. Investment depends on the level of
savings
B. Investment is inversely related to the
rate of interest
C. Investment is determined by the
volume of commercial bank lending
D. Investment rises when there is an
increase in the rate of growth of demand in
the economy

Answer: D

186. In a given economy, of each
additional £1 of income, 30% is taken in taxes,
10% is spent on imports and 40% is spent on
domestically produced goods. The multiplier
is:
A. 5
B. 67
C. 25
D. 6

Answer: B

187.When consumption and income are
equal, saving is ------------
A. Negative
B. Positive

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C. Zero
D. Increasing
Answer: C

188. Keynesian economics is also known as:
A. Supply side economics
B. Monetary economics
C. Rational expectations
D. Depression economics
Answer: D

189. Which of the following can cause shifts in
consumption function:

A. Psychological attitude
B. Social practices
C. Business motives
D. Changes in price level
Answer: D


190. APC is determined by the following
equation:

A. C/Y
B. S/Y
C. ΔC/ΔY
D. ΔS/ΔY
Answer: A

191. In the Keynesian two sector model, when
AD = AS, then:

A. S<I
B. S>I
C. S=I
D. I=0
Answer: C

192. Which of the following is not correct:

A. MPC declines as income increases
B. MPC is positive but less than one
C. MPS is always positive
D. All the above
Answer: C

193. According to Keynes, saving is:

A. Private virtue but not social virtue
B. Private and social virtue
C. Is neither private virtue nor social virtue
D. Is either social virtue or private virtue
Answer: A

194. MEC is inversely related to:
A. Prospective yield
B. Supply price
C. Investment
D. Rate of interest
Answer: A

195. Keynes considered subjective and
objective factors:

A. Important determinants of consumption
B. Unimportant determinants of consumption
C. Determinants of investment
D. Determinants of business’s willingness to
pay
Answer: B

196. The sum of marginal propensity to
consume plus marginal propensity to save
must equal to:

A. 0
B. 1
C. 100
D. 1000
Answer: B

197. Keynesian economics is:
A. Macro
B. Micro
C. Both
D. None
Answer: A

198. The MEC increases when:

A. Capital stock increases
B. Capital stock decreases
C. Capital remains constant
D. None of the above
Answer: B

199. Which of the following is correct?

A. 1+MPS = MPC
B. 1- MPC = MPS
C. MPC + MPS >1
D. MPC+ MPS<1
Answer: B

200. Starting point of Keynesian economics is:
A. Effective demand
B. Individual demand
C. Aggregate demand
D. Market demand
Answer: A

201. Keynesian three sector model consist of:

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A. Business sector, service sector, external
sector
B. Households, business, government
C. Government sector, open sector, service
sector
D. Government sector, private sector, open
sector
Answer: B

202. A substantial increase in the rate of
interest can cause:
A. Increase in savings
B. Reduce propensity to consume
C. All the above
D. None of the above
Answer: C

203. Functional relationship between saving
and disposable income is:
A. Saving function
B. Income function
C. Consumption function
D. Investment function
Answer: A

204. As the value of MPC increases, the value
of multiplier:
A. Decreases
B. Increases
C. Constant
D. Cannot say
Answer: B

205. If MPC = 4/5, then value of the multiplier
is:
A. 20
B. 5
C. 0.80
D. 1.25

Answer: B

206. As national income increases
a) The APC falls and gets nearer in value to
the MPC.
b) The APC increases and diverges in value
from the MPC.
c) The APC stays constant
d) The APC always approaches infinity.
Answer: A

207. As increase in consumption at any given
level of income is likely to lead
a) Higher aggregate demand
b) An increase in exports
c)A fall in taxation revenue
d) A decrease in import spending
Answer: A

208. Lower interest rates are likely to :
a) Decrease in consumption
b) increase cost of borrowing
c) Encourage saving
d) increase borrowing and spending

Answer: D

209. The MPC is equal to :
a) Total spending / total consumption
b) Total consumption/total income
c) Change in consumption /change in
income
d) none of the above.
Answer: C

210. The relationship between totalspending
on consumption and the total
income is the ___________________
a) Consumption function
b) Savings function
c) Investment function
d) aggregate demand function

Answer: A

211. As income increases, consumption will
_________
a)fall
b) not change
c) fluctuate
d) increase
Answer: D

212. When investment is assumed
autonomous the slope of the AD schedule is
determined by the _____
a) marginal propensity to invest
b) disposable income
c) marginal propensity to consume
d) average propensity to consume
Answer: C

213 The multiplier tells us how much
__________ changes after a shift in _____
a) Consumption , income
b) investment, output
c) savings, investment
d) output, aggregate demand

Answer: D

214. In an open economy import
_________the value of the multiplier
a) Reduces

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b) increase
c) does not change
d) changes
Answer: A

215. According to Keynes, investment is a
function of the MEC and _____
a) Demand
b) Supply
c) Income
d) Rate of interest
Answer: D

216. The term super multiplier was first used by
a) J.R.Hicks
b) R.G.D. Allen
c) Kahn
d) Keynes
Answer: A

217. The term MEC was introduced by
a) Adam Smith
b) J.M. Keynes
c) Ricardo
d) Malthus

Answer: B




221. The term business cycle refers to –
(a) fluctuations in aggregate economic
activity over time.
(b) ups and down in the production of
goods
(c) increasing unemployment
(d) declining savings
Answer: A
222. Expansion phase all but one of the
following characteristics.
(a) Increase in national output
(b) Increase in consumer spending
(c) Excess production capacity of industries
(d) Expansion of bank credit
Answer: C
223. Which one of the following is not the
characteristic of business cycle?
(a) They are recurrent
(b) They are not at regular intervals
(c) They have uniform causes
(d) All the above
Answer: C
224. The turning points of the business cycle
are
(a) Expansion and Peak
(b) Peak and Contraction
(c) Contraction and Trough
(d) Peak and Trough
Answer: D
225. _____ refers to the top or the highest
point of business cycle.
(a) Expansion
(b) Peak
(c) Expansion and Peak
(d) None of the above
Answer: B
226. Involuntary unemployment is almost
zero in the _____ phase of business cycle.
(a) Expansion
(b) Contraction
(c) Trough
(d) Depression
Answer: A
227. The economy is said to be overheated
at the _____ phase of business cycle.
(a) Expansion
(b) Peak
(c) Contraction
(d) Depression
Answer: B
228. Cost of living increases when business
cycle is _____
(a) expanding
(b) contracting
(c) at peak
(d) at lowest point
Answer: C
229. There is large scale of involuntary
unemployment in the _____ phase of
business cycle.
(a) expansion

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(b) peak
(c) contraction
(d) none of the above
Answer: C
230. Fall in the level of investments, fall in
production, fall in employment, fall stock
prices, etc. are found during _____ phase of
business cycle.
(a) expansion
(b) boom
(c) peak
(d) contraction
Answer: D
231. All but one are the endogenous
factors of business cycle
(a) War
(b) Changes in government spending
(c) Money supply
(d) Fluctuations in investments
Answer: A
232. _____ is the severe form of recession
with lowest level of economic activity.
(a) Upswing
(b) Depression
(c) Downswing
(d) Peak
Answer: B
233. Fall in the interest rates is a typical
feature of
(a) recovery
(b) boom
(c) depression
(d) contraction
Answer: C
234. During depression _____ industry suffer
from excess production capacity.
(a) capital goods
(b) consumer durable goods
(c) non-durable goods
(d) both ‘a’ and ‘b’
Answer: D
235. The great depression of _____ caused
enormous misery and human sufferings
(a) 1929 – 33
(b) 1919 – 23
(c) 1940 – 53
(d) 1950 – 63
Answer: A
236. The lowest level of economic activity is
called _____
(a) contraction
(b) trough
(c) recovery
(d) none of the above
Answer: B
237. There is end of pessimism and the
beginning of optimism at ______
(a) expansion
(b) peak
(c) trough
(d) depression
Answer: C
238. Which of the following is not the
features of business cycle?
(a) Business cycle follow perfectly timed
cycle
(b) Business cycle vary in intensity
(c) Business cycle vary in length
(d) Business cycle have no set pattern
Answer: A
239. The trough of a business cycle occur
when _____ hits its lowest point.
(a) the money supply
(b) the employment level
(c) inflation in the economy
(d) aggregate economic activity
Answer: D
240. Industries that are most adversely
affected by business cycles are the _____
(a) Durable goods and services sector
(b) Non-durable goods and services
(c) Capital goods and Non-durable goods
sectors

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(d) Capital goods and durable goods
sectors
Answer: D
241. _____ indicators change before the
economy itself changes.
(a) Lagging
(b) Coincident
(c) Leading
(d) concurrent
Answer: C
242. _____ indicators change after the
economy as a whole changes.
(a) Lagging
(b) Coincident
(c) Leading
(d) Concurrent
Answer: A
243. Changes in stock prices, profit margins
and profits, manufacturing activity, etc. are
examples of _____ indicator.
(a) Leading
(b) Lagging
(c) Concurrent
(d) Coincident
Answer: A
244. A variable that moves later than
aggregate economic activity is called
_____
(a) a leading variable
(b) a coincident variable
(c) a lagging variable
(d) a cyclical variable
Answer: C
245. While _____ indicators forecast
economic fluctuation, _____ indicators
confirm the trends.
(a) lagging ; leading
(b) lagging ; coincident
(c) coincident ; leading
(d) leading ; lagging
Answer: D
246. A variable that occur simultaneously
with the business cycle movements is _____
indicator.
(a) Leading
(b) Lagging
(c) Coincident
(d) Cyclical
Answer: C
247. Coincident indicators show _____
(a) the current state of business cycle
(b) the rate of change of expansion
(c) the rate of change of contraction
(d) all the above
Answer: D
248. At the time of Great Depression of
1930s, the global GDP fell by around _____
(a) 12%
(b) 14%
(c) 15%
(d) 10%
Answer: C
249. Which one of the following is not
correct about business cycle?
(a) They occur simultaneously in all
industries and sectors
(b) They affect not only output level but
also other related variables
(c) They are international in character
(d) None of the above
Answer: D
250. Which of the following describes best a
typical trade cycle?
(a) Economic expansions are followed by
economic contractions
(b) Inflation is followed by rising income and
employment
(c) Economic expansions are followed by
economic growth and development
(d) Stagflation followed by rising
employment
Answer: A

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251. During upswing, the unemployment
rate and output _____
(a) rises ; falls
(b) rises ; rises
(c) falls ; rises
(d) falls ; falls
Answer: C
252. Which of the following does not occur
during expansion phase?
(a) Consumer spending increases
(b) Employment increases as demand for
labour rises
(c) Business profits and business confidence
increase
(d) None of the above
Answer: D
253. When aggregate economic activity is
declining, the economy is said to be in
_____
(a) contraction
(b) an expansion
(c) a trough
(d) a turning point
Answer: A
254. Which one of the following is not an
example of coincident indicator?
(a) GDP
(b) inflation
(c) retail sales
(d) New orders for plant and machinery
Answer: D
255. Which one of the following is an
example of lagging indicator?
(a) personal income
(b) new orders for plant and equipment
(c) the consumer price index
(d) slower deliveries
Answer: C
256. _____ is of the view that fluctuations in
economic activities are because of
fluctuations in aggregate effect demand.
(a) Keyens
(b) Schumpeter
(c) Nicholas Kaldor
(d) Joan Robinson
Answer: A
257. High rate of investment brings _____
(a) high level of employment
(b) increase in the aggregate demand
(c) increase in output
(d) all the above
Answer: D
258. If any unemployment exists during
expansion phase of business cycle, it is
_____ un employment.
(a) voluntary and frictional
(b) technological and structural
(c) frictional and structural
(d) structural and involuntary
Answer: C
259. The most probable outcome of
increase in aggregate demand is _____
(a) expansion of economic activity
(b) contraction of economic activity
(c) stable economic activity
(d) volatile economic activity
Answer: A
260. According to _____ a trade cycles is a
purely monetary phenomena
(a) Keyens
(b) Hawtrey
(c) Schumpeter
(d) Nicholas Kaldor
Answer: B
261. Optimistic and pessimistic mood of the
business community also affects the
economic activities is the view of _____
(a) Hawtrey
(b) Schumpeter
(c) Pigou
(d) Keyens
Answer: C

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262. According to _____ trade cycles occur
due to onset of innovations
(a) Hawtrey
(b) Adam Smith
(c) JM Keyens
(d) Schumpeter
Answer: D
263. Business cycles appear due to present
fluctuations in prices affecting the output
and employment in future is _____
(a) Cobweb theory by Nicholas Kaldor
(b) Ordinal theory by Allen & Hicks
(c) Cobweb theory by J.M. Keyens
(d) None of the above
Answer: A
264. Production of _____ goods fall during
the war times.
(a) arms and ammunition
(b) non-durable and capital
(c) capital and weapons
(d) capital and consumer
Answer: D
265. During war times most of the
productive resources are diverted for the
production of
(a) capital goods
(b) consumer goods
(c) weapons and arms
(d) service
Answer: C
266. Economic recession is characterized
by all of the following except _____
(a) Decline in investments, employment
(b) Increase in the price of inputs due to
increased demand for inputs
(c) Investors confidence is shaken
(d) Demand for goods, services decline
Answer: B
267. Production of new and better goods
and services using new technology results in
_____
(a) expansion of employment
(b) increase in the incomes and profits
(c) boost to economy
(d) all the above
Answer: D
268. Understanding the business cycle is
important for business managers because
_____
(a) they affect the demand for their
products
(b) they affect their profits
(c) to frame appropriate policies and
forward planning
(d) all the above
Answer: D
269. Businesses whose fortunes are closely
linked to the rate of economic growth
called _____
(a) Cyclical business
(b) Capital good business
(c) Both ‘a’ and ‘b’
(d) None of the above
Answer: A
270. If the population growth rate is higher
than the economic growth rate it will result
in _____
(a) higher income ; lower savings ; lower
employment
(b) lower income ; lower savings ; lower
investment
(c) higher investment ; lower income ;
higher saving
(d) lower income ; lower savings ; higher
employment
Answer: B