Introduction Microeconomics chapter 1

1. ‘Economics is the study of mankind in the ordinary business of life’ . This definition was given
by : –

(a)    Adam Smith

(b)    Lord Robbins
(c)     Alfred Marshall
(d)    Samuelson

2. The branch of economic theory, that deals with the problem of allocation of resources is :

(a)    Micro Economics

(b)    Macro Economics
(c)     Econometrics
(d)    None of these

3. A study of how increase in the corporate income tax rate , will affect the natural
unemployment rate is an example of :

(a)    Macro Economics

(b)    Descriptive Economics
(c)     Micro Economics
(d)    Normative Economics

4. If a point falls inside the production possibility curve, what does it indicate ?

(a)    Resources are over utilized

(b)    Resources are under utilized
(c)     There is employment in the economy
(d)    Both (b) and (c)

5. In which type of economy do consumers and producers make their choices based on the
market forces of demand and supply?

(a)    Open Economy

(b)    Controlled Economy
(c)     Command Economy
(d)    Market Economy

6. Under a free economy, prices are :

(a)    Regulated
(b)    Determined through free interplay of demand and supply
(c)     Partly regulated.
(d)    None of these

7. Which of the following falls under micro economics ?

(a)    National income
(b)    General price level
(c)     Factor pricing
(d)    National saving and investment

8. In a free market economy, when consumers increase their purchase of a goods and the level
of _______ exceeds _______ then prices tend to rise

(a)    Demand, Supply

(b)    Supply, Demand
(c)     Prices, Demand
(d)    Profits, Supply

9. Under Inductive method, the logic proceeds from :

(a)    General to particulars

(b)    Particular to general
(c)     Both (a) and (b)
(d)    None

10. According to Robbins, ‘means’ are:

(a)    Scarce
(b)    Unlimited
(c)     Undefined
(d)    All of these

ANSWERS

1.  (c) Alfred Marshall

2. (a) Micro Economics

3. (a) Macro Economics

4. (b) Resources are under utilized

5. (d) Market Economy

6. (b) Determined through free interplay of demand and supply

7. (c) Factor pricing

8. (a) Demand, Supply

9. (b) Particular to general
10 (a) Scarce

Theory of consumer behavior chapter:2

1. _____ shows various combinations of two products that give same amount of satisfaction:

(a)    ISO cost curve

(b)    Indifference curve

(c)     Marginal utility curve

(d)    ISO quant

2. Total utility is maximum when :

(a)    Marginal utility is maximum

(b)    Marginal utility is Zero

(c)     Average utility is maximum

(d)    Average utility is Zero

3. An indifference curve is always :

(a)    Concave to the origin

(b)    Convex to the origin

(c)     L-shaped

(d)    A vertical straight line

4. Marginal utility curve of a consumer is also his:

(a)    Indifference curve

(b)    Total utility curve

(c)     Supply curve

(d)    Demand curve

5. At equilibrium, the slope of the indifference curve is:

(a)    Equal to the slope of budget line

(b)    Greater than the slope of budget line

(c)     Smaller than the slope of budget line

(d)    None

6. The law of equi marginal utility considers price of money as:

(a)    zero

(b)    less than one

(c)     more than one

(d)    one

7. Marginal utility approach was given by:

(a)    J.R. hicks

(b)    Alfred Marshall

(c)     Robbins

(d)    A.C. Pigou

8. Indifference curves between income and leisure for an individual are generally:

(a)    Concave to the origin

(b)    Convex to the origin

(c)     Negatively sloped straight lines

(d)    Positively sloped straight lines

9. In case of a right angled indifference curve the goods are:

(a)    Perfect complements

(b)    Prefect substitutes

(c)     Inferior goods

(d)    Giffen good

10. Indifference curves never intersect each other due to:

(a)    Different levels of satisfaction

(b)    Same levels of satisfaction

(c)     Convex to origin

(d)    Concave to origin

ANSWERS

1. (b) Indifference curve

2. (b) Marginal utility is Zero

3. (b) Convex to the origin

4. (d) Demand curve

5. (a) Equal to the slope of budget line

6. (d) one

7. (b) Alfred Marshall

8. (d) Positively sloped straight lines

9. (a) Perfect complements

10 (a) Different levels of satisfaction

Theory of demand

1. Demand for a commodity refers to:

(a)    Desire for the commodity

(b)    Need for the commodity

(c)     Quantity demanded of that commodity

(d)    Quantity of the commodity demanded at a certain price during any particular period of
time.

2. In case of an inferior good, the income elasticity of demand is:

(a)    Positive

(b)    Zero

(c)     Negative

(d)    Infinite

3. For what type of good does demand fall with a rise in income levels of households?

(a)    Inferior goods

(b)    Substitutes

(c)     Luxuries

(d)    necessities

4. In case of Inferior goods like bajra, a fall in its price tends to:

(a)    Make the demand remain constant

(b)    Reduce the demand

(c)     Increase the demand

(d)    Change the demand in an abnormal way

5. Movement along the same demand curve shows:

(a)    Expansion of demand

(b)    Expansion of supply

(c)     Expansion and contraction of demand

(d)    Increase and decrease of demand

6. The price of hot – dogs increase by 22% and the quantity demanded falls by 25% this
indicates that demand for hot dogs is:

(a)    Elastic

(b)    Inelastic

(c)     Unitary elastic

(d)    Perfectly elastic

7. What is an Engels curve?

(a)    Another name of demand curve

(b)    Curve showing both demand & supply curves

(c)     Curve named after Lord Engels

(d)    All

8. Which factor generally keeps the price – elasticity of demand for a good low:

(a)    Variety of uses for that good

(b)    Its low price

(c)     Close substitutes for that good

(d)    High proportion of the consumer’s income spent on it

9. In case of a straight line demand curve meeting the two axes, the price elasticity of demand at
the mid-point of the line would be:

(a)    0

(b)    1

(c)     1.5
(d)    2

10. An increase in demand can result from:

(a)    A decline in the market price

(b)    An increase in income

(c)     A reduction in the price of substitutes

(d)    An increase in the price of complements

ANSWERS

1.(d) Quantity of the commodity demanded at a certain price during any particular period of
time.

2. (c) Negative

3. (a) Inferior goods

4. (b) Reduce the demand

5. (c) Expansion and contraction of demand

6. (a) Elastic

7.  (c) Curve named after Lord Engels

8. (b) Its low price

9. (b) 1

10 (b) An increase in income

Theory of Supply chapter 2

1. The supply of a good refers to:

(a)    Actual production of goods

(b)    Total stock of goods

(c)     Stock available for sale

(d)    Amount of goods offered for sale at a particular price per unit time

2. Increase or Decrease in Supply means:

(a)    Shift in Supply curve

(b)    Movement along same supply curve

(c)     Both (a) and (b)

(d)    Neither (a) or (b)

3. If supply curve is Perfectly Inelastic, the supply curve is:

(a)    Vertical

(b)    Horizontal

(c)     Upward sloping

(d)    Downward sloping

4. When supply price increase in the short run, the profit of the producer _____:

(a)    Increases

(b)    Decreases

(c)     Remains constant

(d)    Decreases marginally

5. A change in the supply of a commodity along with same supply curve may occur due to :

(a)    Change in the price of the commodity

(b)    Change in the prices of related goods

(c)     Change in the future, expectations about the price of the good

(d)    Change in the cost of inputs

6. What is the elasticity of supply, when price changes from ` 15 to ` 12 and supply change from
6 units to 5 units?

(a)    0.77

(b)    0.87

(c)     0.833

(d)    0.58

7. A perfectly inelastic supply curve will be

(a)    Parallel to X axis

(b)    Parallel to Y axis

(c)     Downward sloping

(d)    None of these

8. If the supply of a commodity is perfectly elastic, an increase in demand will result in:

(a)    Decrease in both price and quantity at equilibrium

(b)    Increase in both price and quantity at equilibrium

(c)     Increase in equilibrium quantity, equilibrium price remaining constant

(d)    Increase in equilibrium price, equilibrium quantity remaining constant

9. When change in the quantity supplied is proportionate to the change in the price, the producer
is said to have______:

(a)    Perfectly elastic supply

(b)    Relatively elastic supply

(c)     Unitary elastic supply

(d)    Perfectly inelastic supply

10. Expansion in supply refers to a situation when the producers are willing to supply a :

(a)    Larger quantity of the commodity at an increased price

(b)    larger quantity of the commodity due to increased taxation on that commodity

(c)     Larger quantity of the commodity at the same price

(d)    larger quantity of the commodity at the decreased price

ANSWERS

1.  (d) Amount of goods offered for sale at a particular price per unit time

2. (a) Shift in Supply curve

3. (a) Vertical

4. (a) Increases

5. (a) Change in the price of the commodity

6. (c) 0.833

7. (b) Parallel to Y axis

8. (c) Increase in equilibrium quantity, equilibrium price remaining constant

9. (c) Unitary elastic supply

10 (a) Larger quantity of the commodity at an increased price

Theory of production chapter 3

1. ______ shows the overall output generated at a given level of input:

(a)    Cost function

(b)    Production function

(c)     Iso cost

(d)    Marginal rate of technical substitution

2. If LAC curve falls as output expands, this is due to _____:

(a)    Law of diminishing retains

(b)    Economics of scale

(c)     Law of variable proportion

(d)    Diseconomics of scale

3. Isoquants are equal to:

(a)    Product Lines

(b)    Total utility lines

(c)     Cost lines

(d)    Revenue lines

4. The marginal product curve is above the average product curve when the average product is :

(a)    Increasing

(b)    Decreasing

(c)     Constant

(d)    None

5. Increasing returns to scale can be explained in terms of:

(a)    External and internal economies

(b)    External and internal diseconomies

(c)     External economics and internal diseconomies

(d)    All of these

6. An isoquant is ______ to an iso cost line at equilibrium point:

(a)    Convex

(b)    Concave

(c)     Tangent

(d)    Perpendicular

7. At the point of inflexion, the marginal product is:

(a)    Increasing

(b)    Decreasing

(c)     Maximum

(d)    Negative

8. Diminishing marginal returns implies:

(a)    Decreasing average variable costs

(b)    Decreasing marginal costs

(c)     Increasing marginal costs

(d)    Decreasing average fixed costs

9. If the marginal product of labour is below the average product of labour. It must be true that:

(a)    Marginal product of labour is negative

(b)    Marginal product of labour is zero

(c)     Average product of labour is falling

(d)    Average product of labour is negative

10. Law of variable proportion is valid when:

(a)    Only one input is fixed and all other inputs are kept variable

(b)    All factors are kept constant

(c)     All inputs are varied in the same proportion

(d)    None of these

ANSWERS

1.  (b) Production function

2. (b) Economics of scale

3. (a) Product Lines

4. (a) Increasing

5. (a) External and internal economies

6. (c) Tangent

7. (c) Maximum

8. (c) Increasing marginal costs

9. (c) Average product of labour is falling

10 (a) Only one input is fixed and all other inputs are kept variable

Thoery of Cost

1. Opportunity cost is:

(a)    Direct cost

(b)    Total cost

(c)     Accounting cost

(d)    Cost of foregone opportunity

2. As output increases, average fixed cost:

(a)    Remains constant

(b)    Starts falling

(c)     Start rising

(d)    None

3. Average fixed cost can be obtained through:

(a) AFC=TFC/TS

(b)AFC=EC/TU

(c)AFC=TC/PC

(d) AFC=TFC/TU

4. AFC curve is:

(a)    Convex & downward sloping

(b)    Concave & downward sloping

(c)     Convex & upward sloping

(d)    Concave & upward rising

5. A firm’s average fixed cost is Rs 20 at 6 units of output what will it be at 4 units of output?

(a)    Rs 60

(b)    Rs 30

(c)    Rs 40

(d)    Rs 20

6. U-shaped average cost curve is based on:

(a)    Law of increasing cost

(b)    Law of decreasing cost

(c)     Law of constant returns to scale

(d)    Law of variable proportions

7. When shape of average cost curve is upwards, marginal cost:

(a)    Must be decreasing

(b)    Must be constant

(c)     Must be rising

(d)    Any of these

8. If total cost at 10 units is Rs 600 and Rs 640 for 11th unit. The marginal cost of 11 th unit is:

(a)    Rs 20

(b)    Rs 30

(c)    Rs 40

(d)    Rs 50

9. Economic cost excludes:

(a)    Accounting cost + explicit cost

(b)    Accounting cost + implicit cost

(c)     Explicit cost + Implicit cost

(d)    Accounting cost + opportunity cost

10. Which of the following cost curves is never ‘U’ shaped?

(a)    Average cost curve

(b)    Marginal cost curve

(c)     Total cost curve

(d)    Fixed cost curve

ANSWERS

1.  (d) Cost of foregone opportunity

2. (b) Starts falling

3. (d) AFC=TFC/TU

4. (a) Convex & downward sloping

5. (b) Rs 30

6. (d) Law of variable proportions

7. (c) Must be rising

8. (c) Rs 40

9. (a) Accounting cost + explicit cost

10 (d) Fixed cost curve

Chapter 4 Market

1.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

2. Under which of the following forms of market structure does a firm has no control over the
price of its product:

(a)    Monopoly

(b)    Oligopoly
(c)     Monopolistic competition

(d)    Perfect competition

3. Given the relation   if e > 1, then :

(a)    MR > 0

(b)    MR < 0

(c)     MR = 0

(d)    None

4. Profits of the firm will be more at:

(a)    MR = MC

(b)    Additional revenue from extra unit equals its additional cost

(c)     Both of above

(d)    None

5. What should firm do when Marginal revenue is greater than marginal cost?

(a)    Firm should expand output

(b)    Effect should be made to make them equal

(c)     Prices should be covered down

(d)    All of these

6. Under monopoly price discrimination depends upon:

(a)    Elasticity of demand for commodity

(b)    Elasticity of supply for commodity

(c)     Size of market

(d)    All of above

7. Firms in a monopolistic market are price _______:

(a)    Takers

(b)    Givers

(c)     Makers

(d)    Acceptors

8. Market which have two firms are known as:

(a)    Oligopoly

(b)    Duopoly

(c)     Monopsony

(d)    Oligopsony

9. Monopolist can determine:

(a)    Price

(b)    Output

(c)     Either price or output

(d)    None

10. MR of nth unit is given by:

(a)    TRn/TRn – 1

(b)    TRn + TRn – 1

(c)     TRn – TRn – 1

(d)    All of these

 
ANSWERS

1.  (d) Absence of transport cost

2. (d) Perfect competition

3. (a) MR > 0

4. (c) Both of above

5. (a) Firm should expand output

6. (a) Elasticity of demand for commodity

7. (c) Makers

8. (b) Duopoly

9. (c) Either price or output

10 (c) TRn – TRn – 1

Determination of price chapter 4

1.For maximum profit, the condition is:

(a)    AR = AC

(b)    MR = MC

(c)     MR = AR

(d)    MC = AC

2.Equilibrium price may be determined through:

(a)    Only demand

(b)    Only supply

(c)     Both demand & supply

(d)    None
3. If price is forced to stay below equilibrium price:

(a)    Excess supply exists.

(b)    Excess demand exists

(c)     Either (a) or (b)

(d)    Neither (a) or (b)

4. An increase in supply with unchanged demand leads to :

(a)    Rise in price and fall in quantity

(b)    Fall in both price and quantity

(c)     Rise in both price and quantity

(d)    Fall in price and rise in quantity

5. In the long run:

(a)    Only demand can change

(b)    Only supply can change

(c)     Both demand and supply can change

(d)    None of these

ANSWERS

1. (b) MR = MC

2. (c) Both demand & supply

3. (b) Excess demand exists

4. (d) Fall in price and rise in quantity

5. (c) Both demand and supply can change

Price and output determination chapter 4

1. A competitive firm in the sort run incure losses. The firm continues production, if:

(a)    P > AVC

(b)    P = AVC

(c)     P < AVC

(d)    P > AVC

2. Under _______ market condition, firms make normal profits in the long run:

(a)    Perfect competition

(b)    Monopoly

(c)     Oligopoly

(d)    None

3. 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

4. Under Monopolistic competition the cross elasticity of demand for the product of a single firm
would be:

(a)    Infinite

(b)    Highly elastic

(c)     Highly inelastic

(d)    Zero

5. When AR = ` 10 and AC = ` 8 the firm makes ________ :

(a)    Normal profit

(b)    Net profit

(c)     Gross profit

(d)    Supernormal profit

6. What are the conditions for the long run equilibrium of the competitive firm?

(a)    LMC = LAC = P

(b)    SMC = SAC = LMC

(c)     P = MR

(d)    All of these

7. Kinked demand curve hypothesis is given by:

(a)    Alfred marshal

(b)    A.C Pigou

(c)     Sweezy

(d)    Hicks & allen

8. Supernormal profits occur, when :

(a)    Total revenue is equal to total cost

(b)    Total revenue is equal to variable cost

(c)     Average revenue is more than average cost

(d)    Average revenue is equal to average cost

9. 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

10. 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

ANSWERS

1. (d) P > AVC

2. (a) Perfect competition

3. (d) His marginal cost is equal to marginal revenue

4. (d) Zero

5. (d) Supernormal profit

6. (a) LMC = LAC = P

7. (c) Sweezy

8. (c) Average revenue is more than average cost

9. (b) Incur losses

10 (b) Two equal parts